Market Journal: At Resistance Without Confirmation

A retest of the 4211 SPX 200dma should surprise no one. Nor should a decisive break down to SPX 4000.

Discussion

No doubt the intra-day reversals in SPX the last three trading days have been impressive as it shows there is aggregate demand for equities circa the SPX 200dma, likely emanating from seasonally positive inflows. But cross-asset market confirmation of the move up is sorely lacking, and now SPX sits right at its falling 20dma, a configuration that almost always leads to a near-term pullback to test bullish resolve. A retest of the 4211 SPX 200dma should surprise no one; and given the extreme lack of cross-asset market confirmation that a durable tactical low has been established, nor should a decisive break down to SPX 4000.

Exhibits

At 4336 SPX closed yesterday just below its 4350 20dma. Even in bullish uptrends, the 20dma acts as near-term resistance coming out of pullbacks - all the more in a bear market, such as the one that has been in place since January 2022.

Exceedingly weak breadth profile despite a series of impressive intra-day reversals. At minimum, the Santa Rally camp needs to be tested with an uncomfortable pullback.

From a sentiment and breadth perspective, the market never reached fully oversold levels into the October lows. The market doesn’t “need” to do anything, but to better account for the decisively negative macro landscape looking out over the next 12 months, a fully oversold condition would provide the necessary margin of safety to tactically trade the market from the long side with confidence.