Warning – If you’re a macro-bear trader this article is not for you. In this article I’ll lay out some key points in favor of S&P 500 Index to breakout above 4200 levels.
Be it you’re a full time trader or passive, sidelined investor – we’ve been trading the same range for nearly 12 months now. A narrow wedge between 4200 levels and roughly 3800. When will this end? Are we completely stuck in the range for the immediate future? The answer to that, well, is quite simply yes.
As long as Jerome Powell and Co. (FOMC) continues to use lagging inflation indicators, and also non-voting members such as Bullard, Bostic, etc., continue to spew un-inspiring comments that some how moves the markets – yes. For the time being we are stuck in this range. For a trader, this is paradise! For the long term investor, it’s quite frustrating.
This is the monthly candle chart for the S&P 500 Index. While we have enjoyed a nice breakout above trendline – sentiment is still shaky:
1) Positive: Prices since Covid Crash have remained above the 50MA. A major turn around will be a monthly close above the 20MA at 4167. We’re almost there. A close this month of May above 4167 will be outright bullish. We’ll see.
2) As the 20MA (orange line) and 50MA (yellow) continue to “converge”, we should see more tight ranges in the immediate future.
3) Not so positive is the macro backdrop of potentially more small bank failures, debt limit negotiations and ongoing inflation.
In 2023, we’ve seen more than several bank failures, rate hikes, sticky inflation, a bomb landed in Poland on accident, intense international tensions between China and Taiwan. But yet…
1. S&P 500 Index continue to make “higher lows” through each event. If you remember: SIVB, FRC, CS, and well, I forgot the others. Catching my drift? Seems market continue to be in the “buy the dip” mood.
2. This is a classic wedge setup on the S&P 500 Index that a) broke out, b) successfully backtest the trendline breakout just a day ago and have held.
The macro-bearish, doom and gloom, world-is-ending thesis is beginning to fade in to the background.
As I am writing this article, we’ve just witnessed history. Nvidia NVDA just raised their guidance by a full $3B for the next year – meanwhile enjoying a 30% rise in share price since earnings. But, I thought this was a “suckers rally”? I present to you the Dow Theory playing out in front of us. I’m afraid the macro-bears are missing out on major money making – wealth generating opportunities. If my assessment is correct, this is the first time in history of Dow Theory that Phase 3 dip was barely any lower (Oct 2022 Lows) vs. June 2002 lows.
1. Does a risk-on approach makes sense here? Yes. I believe that. If you’re a long term investor, I do believe it’s worth DCA’ing profitable names, names that you believe have a solid product and future. Personally, AMD AMD is one of my top picks followed by KO
2. Continuing to cry wolf such as my counterparts is a modern day shakespearean travesty. The world is not ending. The consumer debt is not going to predict the future of S&P 500 Index. Inflation is moderating. Real estate is still investable. Powell is not going to hike to kingdom come as you would wish. And no, JPM is not going under. The more net shorts in the market, the harder the squeeze above 4200.
3. I’m really exhausted of the same bear thesis: “Only 5 stocks are lifting up the markets.” They forget that concentration of market influence in certain stocks often indicates their success in disruptive industries, such as technology. These companies typically drive innovation, create jobs, and contribute to economic development FOR THE FUTURE! Just wait until IWM (Small Caps) starts to run…
AAPL AMZN MSFT etc.
Your Loving Bull Market Enthusiast,
For day-to-day trades, signals, education, commentary visit www.therocktradingco.com or follow us at @the_rocktrading on twitter.