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SPX rallies as market breadth expands

The stock market continues to rally as market breadth expands. Although stock market indexes have yet to achieve new all-time highs, technical developments this year hint at a retest of the 2021/2022 record highs.


Three SPX technical developments confirm intermediate-term rallies.


(1) The late Jan 2023 downtrend breakout and the subsequent golden cross buy signal also in late Jan 2023 reversed the primary Jan 2022 downtrend.


(2) The breakouts during May 2023 (above 4,177.5-4,195) and Jun 2023 (4,307.5-4,325) reaffirm the intermediate-term reversal.


(3) The recent 11/14/23 gap-up and the Jul 2023 downtrend breakout above 4,425 suggests a retest of initial resistance at 4,607-7-4,637 (Mar 2002 and Jul 2023 highs) and above this 4,818.62 (1/4/22 all-time high). A neckline breakout above 4,325 also suggests 833.78 points or an SPX target at 5,159.


Market breadth indicators also show breakouts and expansions.


(1) The SPX advance minus decline trend continues to broaden. It is now trading above the Jan/Aug 2022 and Feb/Apr/Jun 2023 highs at 7,577-7,608, confirming a neckline and an ascending triangle breakout. However, an overbought condition may be developing, prompting the potential for near-term consolidation toward its previous breakout before the resumption of the uptrend.


(2) The % of SPX stocks trading above 50-day ma (77.00%) is another proxy for the internal health of the SPX market breadth from a near-term perspective. The indicator nears critical resistance at 76-78. A breakout hints at a rally toward 87-89.60 (Nov 2022 downtrend and Jul 2023 highs) and above 92.40-92.60 (Aug/Nov 2022 highs).


(3) The % of SPX stocks trading above 200-day ma (59.20%) has also improved, expanding above the 50s. However, formidable initial resistance in the mid-60s and significant intermediate-term resistance at 76-78. The outcome will determine whether this is the next SPX price consolidation or the next SPX bull rally.


(4) RSP or the SPX equal-weight ETF is another proxy for SPX market breadth. RSP continues to diverge from SPX as it retains its 1-plus year downtrend channel and head and shoulders top pattern. A breakout would further substantiate the broadness of the market rally.


(5) Another technical scan of SPX stocks trading above 50 and 200-day moving averages shows 264 SPX stocks (or 52.8% of the total SPX) trading above their near-to-intermediate-term moving averages. With more than half of SPX stocks in short-to-intermediate uptrends, this hints at investors returning to large-cap stocks again.


Near-term overbought conditions developing, and pullbacks should be healthy and constructive for the sustainability of the bull rally.


Failure to clear above resistance at 4,607-4,637 coupled with an overbought condition warns of near-term consolidation. Initial support is 4,422-4,459 (11/14/23 gap-up) and 4,391 (extension of the Jul 2023 downtrend) and below this 4,319-4,351 (11/3/23 gap-up, the June 2023 breakout, and the 50-day ma) and 4,245.5-4,281.5 (11/2/23 gap-up and the 200-day ma). The 10/27/23 reaction low (4,103.78) and the Nov 2022 uptrend and bottom of the Jul 2023 downtrend channel (4,082) provide critical intermediate-term support.


In summary, SPX price rallies hint at the next bull market. However, it is the broadness of the rally and the amount of participation from investors that will help decide the sustainability of the bull rallies. Expanding market breadth accompanied by strong market internals suggests the bulls are in control of the market’s momentum and helps confirm a price rise in the index.


Source: Chart courtesy of StockCharts.com

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