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March 2023 uptrend channel

Earnings season is winding down as investors turn toward upcoming inflation and economic data to determine the Fed’s next moves. Stocks and bonds have become increasingly volatile, reacting widely to inflation numbers and seasonality factors.


Stocks and bond prices are leading economic indicators that tend to peak and trough months and quarters ahead of business cycle tops and bottoms. It remains worthwhile for investors to track the primary trends of stocks for future directions.


Despite the increased market volatility over the past two weeks, the primary and dominant trend for SPX remains the Mar 2023 uptrend channel between 4,415 and 4,667. As the uptrend channel remains intact, this would lead to higher SPX prices.


However, the SPX rally from 3,808.86 (3/13/23 low) to 4,607.07 (7/27/23 high) or +798.21 points +20.96% faded near the top of the uptrend channel at 4,607.07 (7/27/23). An overbought condition (RSI at 74.88 - 7/18/23), two negative outside days (7/27 and 8/4/23), the violation of the May 2023 uptrend (8/2/23), and a negative-outside day (8/4/23) warn of a correction to 4,474.55 or -132.52 points (-2.88%) from the recent 7/27/23 high.


Is the recent 7-day correction nearing an end?


Or is a deeper correction warranted?


It is reasonable to expect a 3-5% correction after an impressive 4-month 21% rally. SPX nears a critical phase of its corrective phase as initial support is visible at 4,443.5-4,463, coinciding with the 7/12/23 gap-up breakout. Failure to maintain this support signals a correction to pivotal secondary support at 4,415-4,419 (50-day ma, the bottom of the Mar 2023 uptrend channel, and the 23.6% retracement from the Mar-Jul 2023 rally).


A violation of the bottom of the Mar 2023 uptrend (4,415) warns of a decline toward 4,302-4,328 (38.2% retracement, Jun 2023 breakout above 4,325, and the 6/26/23 low). The correction results in SPX declining 278.99-304.92 points (6.06% to -6.63%) or slightly exceeding the 3-5% correction threshold.


Although weak seasonality factors may contribute to further market volatility over the next few weeks, robust and sustainable uptrends typically find crucial support above the 38.2% retracement (4,302) and maintain the 3-5% corrective range.


Also, the VIX Index (15.77) has entered a trading range between 12.75-13.0 and 19.5-21. The ability of VIX to breakout above 19.5-21 warns of further volatility into Aug/Sept 2023. On the other hand, VIX peaking near 19.5-21 can lead to the resumption of the Mar 2023 primary uptrend. Most technical indicators, including the advance minus decline line and RSI, are bullish. However, the MACD price momentum and the ADX +DI/-DI trend indicators warn of the potential for higher market volatility over the near term.


Nonetheless, an SPX breakdown below 4,302-4,328 warns of a deeper SPX correction (5-10%) toward 4,195-4,241 (50% retracement, May 2023 breakout, and the 6/2/23 gap-up), and below this 4,101-4,114 (200-day ma, 5/24/23 low, and the 61.8% retracement). Violation here confirms the start of the next market selloff.


Since the primary trend remains an uptrend, it will continue in the same direction. Initial resistance is 4,540-4,567.5 (8/4/23 negative outside day and 8/2/23 gap-down), 4,607.07 (7/27/23 high), and 4,667 (top of the Mar 2023 uptrend channel). A move above 4,667 confirms an accelerated channel breakout and suggests +252-points or a retest of 4,818.62 (1/4/22 all-time high) and 4,919 (channel breakout projection).


Will SPX set a new all-time this year?


Will a new SPX record high trigger the elusive deep correction and bear market decline Wall and Main Street pundits have been predicting for the past year?


Source: Chart courtesy of StockCharts.com

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