Sound the tactical all-clear

Mid-week market update: Last week, the usually reliable S&P 500 Intermediate Term Breadth Momentum Oscillator (ITBM) flashed a tactical sell signal when its 14-day RSI recycled from overbought to neutral.


It’s time to sound the tactical all-clear in the aftermath of the sell signal.


Bottoming signals

One reader alerted me that my bottoming model flashed a buy signal early this week when the VIX Index rise above its upper Bollinger Band and the NYSE McClellan Oscillator became oversold. In the past, buy signals from two or more indicators in close proximity to each other is enough for a buy signal.


A review of the equity averages across market cap bands shows that the S&P 500 briefly dipped below support and recovered, with the equal-weighted S&P 500, the mid-cap S&P 400, and the small-cap Russell 2000 all held above support. These are all constructive signs for the market.


As well, the relative performance of all of the defensive sectors are not behaving well.


Tactically, these are all indicators that the bears have lost control of the tape, but it doesn’t necessarily mean that the bulls are fully in the driver’s seat. The long Treasury bond has violated support and it’s breaking down, and so are non-US sovereigns. Rising bond yields (and falling bond prices) are likely to weigh on the equity outlook in the near-term.


My base case calls for an uneven and choppy intermediate term upward path for stock prices.

2 thoughts on “Sound the tactical all-clear

  1. In my humble opinion the market coming into the CPI data was looking for a very hot number and had bought volatility. Which is now being unwound. Also, the 0DTE option traders are distorting the tape. TSLA is being bulled up by these traders. Unfortunately, what goes up can come down very quickly and sharply. With yields rising and dollar rallying it is counter intuitive for stocks to rally. More so, the Nasdaq. With valuation stretched it is only time before the music stops.

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