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Mixed Market Internals and Market Actions?

During 2021, the stock market shows significant strength, at least from the perspective of establishing new all-time highs. The large-cap indexes (i.e., SPX and NDX) dominated overall market performance. However, toward year-end, internal cracks appeared below the surface.

In Nov 2021, technology-laden indexes such as COMPQ and NDX peaked. Two months later, in Jan 2022, the rest of the stock market topped (i.e., SPX, INDU, NYA, etc.).

Last year, everything fell, and none was immune to the broad bear market decline, with the mega-cap names, including growth stocks and large technology stocks falling the most.

From the Oct 2022 lows, market conditions and market breadth have improved. But do not lose sight of markets also recovering from extremely bearish levels.

So far this year, SPX and other indexes continue with their gains, primarily from the strengths of the mega-cap stocks.

But have the churning actions and mixed readings below the surface resurfaced?

Below is another technical review of the SPX Index. The objective is to evaluate the recent market actions and the internal health of SPX.

A brief analysis shows mixed readings but continued improvements. However, critical technical indicators appear to be nearing critical junctures of their respective rallies.

From a chart price perspective, SPX nears its 2/2/23 high at 4,195.44. Will the index finally break out and extends its Oct 2022 recovery toward critical resistance at 4,325.28 (Aug 2022 reaction high)?

As mentioned before, the current market conditions show mixed results. Some technical indicators hint at a favorable outcome (impending technical breakout). Other indicators warn of an SPX peak and an impending correction.

Positive indications include the potential for a May 2022 head/shoulders bottom, higher lows, Jan 2022 downtrend breakout, and the Mar 2023 SPX/WLSH relative strength breakout.

Negatives include potential head/shoulders top in the % of SPX trading above 200-day ma (61.8%), Advance-Decline trend nearing the top of its trading range, the MACD price momentum indicator also nears formidable resistance, and the RSI overbought and oversold indicator (64.36) nears overbought levels (70).

Another two studies suggest a narrowed and mixed market environment in which a few S&P sectors and SPX stocks account for most of the year-to-date SPX gains.

The S&P sector study shows a lack of broadness in the current rally. Only three (3) S&P sectors have outperformed the market (SPY +8.72 YTD), including Communication Services (XLC +22.42% YTD), Technology (XLK +20.52%), and Consumer Discretionary (XLY +15.08%). Although the strengths in the three sectors can lead to higher SPX gains, if the rotations do not expand, it may lead to another consolidation or market selloff.

An equally important study of SPX individual stocks also shows only 165 SPX stocks (or 33% of the total SPX) currently outperform SPX Index (+8.21% YTD). The 165 outperforming names averaged gains of 18.87% YTD, ranging from 43% to 81% YTD. Again, it is tough for sustainable intermediate-to-long-term trends to sustain without broadening market breadth.

As investors have painfully learned from last year, short-term recoveries without confirmations from the market breadth and sector rotations are not healthy.

Although the outperformance from the large-cap stocks can power SPX higher temporarily, rallies tend to fade without greater participation from the broad marketplace.

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

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