The 2023 stock market rally has been fueled partly by a resurgence of buying among the mega-cap Technology names and optimism that the Fed may be nearing an end to its tightening cycle. The fear of missing out, the AI technology revolution, and the need for performance by institutional investors underweight technology led to catch-up buying, specifically in the Technology-laden Nasdaq indexes and technology-dominated sectors.
Although SPX has also rallied alongside the Nasdaq technology-heavy indexes, has easy money been made?
For the rally to sustain, it will still need to broaden out. While breadth has improved, the broadness of the SPX rally remains confined to a handful of technology names and sectors.
For instance, while the SPX Index has appreciated 12.74% this year, the SPX equal-weighted index (RSP) has only gained 4.08%. Also, the number of S&P 500 stocks trading above their respective 50-day ma and 200-day ma is 234 SPX names.
Small and mid-cap stocks, economically sensitive names, and value stocks continue to lag the tech-oriented rally. These areas must strengthen to convince investors the economy is expanding, inflation is under control, and the threat of a hard landing is behind us.
SPX has cleared the above two key resistances, including the pivotal 4,195.44 (2/2/23 high) and 4,325.28 (8/16/23 reaction high), confirming an intermediate-term breakout. However, an overbought condition has developed into a rally as the RSI indicator peaked at 76.92 (6/15/23), trading to the highest level since Nov 2021 (76.92). The sharp pullback in RSI warns of consolidation toward the neutral level (50).
Despite Fed pausing its rate hike at the last June FOMC meeting, market participants believe two more quarter-point Fed rate hikes are likely this year. The bond market and the inversion of the yield curve also warn of a slowing economy.
The question is whether the two additional rate hikes will further weaken the economy and send the economy into a recession.
This week is relatively light regarding economic numbers, with the Fed’s favored inflation indicator, the personal consumption expenditures index for May, set to be released on Friday. The following week is also a shorten-holiday week. Liquidity may decline into the dog days of summer or the 40 days beginning July 3 and ending August 11, coinciding with the heliacal (at sunrise) rising of the Dog Star, Sirius.
Summarized below are near-to-medium-term supports for stock market indexes:
SPX = 4,325.28 (8/16/22 high and 6/12/23 breakout), 4,195.44-4,207 (2/2/23 high, 5/30/23 breakout, and 50-day ma), 4,101-4,119 (Sept and Dec 2022 highs), and 4,048-4,049 (Apr/May 2023 lows and Oct 2022 uptrend).
INDU = 33,613 (50-day ma) and 32,573-32,870 (200-day ma and the Dec 2022 and May 2023 lows), and 31,430 (3/15/23 low).
NYA = 15,398 (50-day ma), 15,171 (200-day ma), 14,810.5-14,867 (Dec 2022 and May 2023 lows), and 14,696-14,471 (May 2022 and Mar 2023 lows).
COMPQ = 13,181 (8/16/22 high and 6/2/23 breakout), 12,696 (50-day
ma), and 12,139-12,320 (Jun 2022 and Feb 2023 highs, 5/10/23 breakout, and Jan 2023 uptrend).
NDX = 13,721-13,848 (8/16/22 high, 5/18/23 breakout, top of 5/25/23 gap-up, and 50-day ma), 13,521-13,656 (Jan 2023 uptrend and bottom of 5/24/23 gap-up), and 12,881-12,898 (Jun 2022 and Feb 2023 highs).
MID = 2,476-2,487 (200-day ma and 50-day ma), 2,398.5-2,449 (6/2/23 gap-up), and 2,378-2,393/2,350 (Dec 2022 and May 2023 lows/Mar 2023 low).
SML = 1,158 (50-day ma), 1,139-1,147 (6/2/23 gap-up and May 2022 low), 1,135 (Dec 2022 low), and 1,102.5-1,111.5 (Mar and May 2023 lows).