February 5, 2023 8:08 pm ETS&P 500 Index (SP500)ACTV, AFMC, AFSM, ARKK, AVUV, BAPR, BAUG, BBMC, BBSC, BFOR, BFT, BJUL, BJUN, BKMC, BKSE, BMAR, BMAY, BOCT, CAPO, MATCH, FIT, BUL, CALF, CAT, CBSE, CSA, CSB, CSD, CSF, CSML, CSTNL, CWS, CZA, DDIV, DEEP, DES, DEUS, DFAS, DGRS, DIAM, DIV, DJD, ASSISTANT, DVLU ,DWAS,DMC,EES,EFIV,EPS,EQUAL,ESML,ETO,EWMC,EWSC,EZM,FAB,FAD,FDM,FTY,FLQM,FLQS,FNDA,FNK,FNX,FNY,FOVL,FRTY,FSMD, FTA, FTDS, FYC, FYT, FYX, GLRY, GSSC, SALVE, HIBL, HIBS, HLGE, HOMZ, HSMV, IJH, IJJ, IJK, IJR, IJS, IJT, IMCB, IMCG, IMCV, IPO, ISCB, ISCG, ISCV, ISMD, IUSS, IVDG, IHO, IVOG, IVOO, IVOV, IVV, IVW, IWC, IWM, IWN, IWO, IWP, IWR, IWS, IYY, JDIV, JHMM, JHSC, JPME, JPSE, JSMD, JSM, KAPR, KJAN, KJUL, KNG, KOMP, LSA, MDY, MDYG, MDYV, MGMT, MEDIUM, MIDE, NAP, NJAN, NOBL, NUM, NUMV, NUSC, NVQ, OMFS, ONE O, ONEQ, ONEV, ONE, OSCV, OUSM, OVS, PAMC, PAPR, PAUGO, PBP, PBSM, PEXL, PEY, PJAN, PJUN, PLTL, PRFZ, PSC, PTMC, PUTW, PWC, PY, QDIV, QMOM, QQC, QQD, QQEW, QQQ, QQQA, QQQE, QQQJ, QQQM, QQQN, QQXT, QTEC, QVAL, QVML, QVMM, QVM, QYLD, QYLG, REGL, RF G, RFV, RNMC, RNSC, ROSC, RPG, RPV, RSP, RVR, RWJ, RWK, RWL, RYARX, RYJ, RYT, RZG, RZV2 Comments
Summary
- Last week gave the bulls everything they could reasonably want.
- An accommodative FOMC, strong data and positive technicals contributed to the rally to 4195.
- The only "problem" is that, even if everything goes well, something could easily go wrong. The bears will be looking for a change in the narrative and will have to defend the weekly break.
cinematographic
The S&P 500 (SPYING) continued its strong recovery to a high of 4195 last week, aided by a Fed that pretty much gave the bulls everything they could hope for. Technicals are getting better, and with the break of 4101, the chart now has a higher high to go with the higher low at 3764. Combined with the trendline break and price action, especially the moving averages on each timeframe, do bears have any hope?
To answer this question, a variety of technical analysis techniques will be used to examine the S&P 500's likely movements over the coming week. As in previous weeks, the market will be viewed for likely outcomes using Inflection Points—if it's falling, where is it likely to go? If it's rising, where is it likely to test?
The S&P 500 chart will be analyzed on a monthly, weekly, and daily basis, and the information compiled into a usable summary at the end.
The history of the market
The Fed didn't really fight the stock rally much. In fact, slowing the pace of hikes to 25 basis points and confirming that they believe the "disinflationary process has already begun" added fuel to the fire. A pause seems likely soon, with many calling for "one more and that's it." Furthermore, the meeting resulted in an additional 10 basis points of cuts, added to the 50 basis points already priced in for the end of the year.
Rising expectations for rate cuts juxtaposed strangely with firmer data, with the NFP hammering significantly and ISM Services stabilizing at 55.2. Earnings were roughly flat, and the heavyweights didn't drag the index down. Furthermore, the percentage of companies beating estimates rose from 67.8% the previous week to 69.6%. The question seems not whether there will be a soft landing, but rather whether there will be a landing at all.
All of the above is perfect for the bulls and the S&P 500 rally, but it doesn't seem to make sense. If the economy is very strong and the job market is very tight, inflation won't fall and the Fed won't cut. Bulls really can't have it all. This will give the bears some hope, as cracks will appear at some point, and the S&P 500 seems perfectly priced.
S&P 500 monthly
A new monthly bar for February began on Wednesday after the January bar closed with an "inside bar," meaning the January range was fully contained within the December range. This power signaled indecision and a reversal, but January's strong close was soon followed by new highs above 4101. The February bar now needs to break back below 4101, and 4070 opens to begin forming a reversal bar.
SPX Monthly (TradingView)
The August high of 4325 is the next resistance. Support is at the breakout level of 4101 and the February low of 4037.
There are no signs of exhaustion either way (using Demark's methods), although exhaustion to the downside was almost observed in October, so we can say it is restarting with the current rally.
S&P 500 weekly
Last week's rally to 4195 came very close to the next weekly reference at 4203. There is now an active inverse head and shoulders pattern with a target of 4743, but this is only relevant in the medium term, i.e. not next week.
Weekly SPX (TradingView)
Resistance comes in at 4203-4228 in the wide weekly gap, with monthly resistance at 4325 above. Support is at the 50-day moving average at 4025 and last week's low at 4015.
Again, there are no signs of exhaustion in either direction.
S&P 500 daily
The daily chart held the first support level of 4015 reported last week and continued at weekly resistance. The daily bullish exhaustion was completed on Thursday, so this at least warns of a slowdown/pause to come. Friday was weak, but it didn't derail the trend, and there's no real evidence of a reversal.
SPX Daily (TradingView)
The price is now above all moving averages, with only weekly/monthly references as resistance. Immediate support is at 4119, then 4101, and the breakout level. Below that is 4037, the pre-FOMC low/low from February.
The bar is too high to turn the chart down, as this would only happen on a break below the 200-day moving average and the trendline around 3940.
As mentioned above, the exhaustion countdown to the upside is complete.
Scenarios for next week
Optimistic
A break of 4203-4228 should lead to a test of 4325. Dips should hold at 4101-4119 to maintain bullish momentum.
Rude
Bears need to defend 4203-4228 and pull back below 4101 to target 4037 and 4015. A sharp decline would target the key area around 3940.
Conclusion
Bulls have the upper hand, and while a breakout around 4203 seems likely, as long as 4101 holds, technicals are positive. Bears need a catalyst for a reversal. Chairman Powell's speech on Tuesday and the CPI the following week seem likely candidates, but a sharp decline is needed to bring sentiment back to the downside.
Editor's note: This article covers one or more microcap securities. Please be aware of the risks associated with these securities.
This article was written by
Independent investor and stock analyst at Matrixtrade.com. Trend follower and market timer. Correlations and analogies. Every moment, every tool… everywhere I see an advantage: exchange.
Disclosure: I/w We do not hold shares, options, or similar derivative positions in any of the companies mentioned, and we do not intend to initiate such positions within the next 72 hours. I wrote this article myself, and it expresses my opinions. I receive no compensation for it (except from Seeking Alpha). I do not do business with any company whose stock is mentioned in this article.
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