Last week was the reset of the January 6-month calendar range. For the S&P 500, that range sits at 3770-4000.23.
In our 2023 Outlook, the prediction we made for the yearly range is much wider, or between 3200-4200. That is based on the position of two key monthly moving averages. Looking at the 6-month range, today's high was 402.64, but SPY closed at 400.52 Just marginally above the range and well below the high of the day. Also, interesting to note is the 50-week moving average, which SPY has yet to clear.
So, positive action? Yes!
The signal to go full blown long? Not so fast. What is momentum telling us?
Before we look at momentum, let's examine a couple of other interesting areas of potential importance right now, ahead of lots of earnings, the PCE number and a Federal Reserve blackout period.
First off there are the junk bonds and the 2 ETFs we watch, HYG and JNK. Both are crucial to the market breadth, and both closed red and are underperforming SPY. That makes the exuberance right now suspect.
Note the bottom of the chart. The blue line sits well under the red line--that means underperformance.
Our Real Motion Indicator helps to assess growing, slowing, or changing momentum in any and every tradeable financial instrument. As noted by the chart, in high-yield-grade bonds, momentum trades sideways after a sell signal (mean reversion) last week.
Circling back to the SPY, momentum reflects the resistance auspiciously right near the calendar range. Just under the dotted line (Bollinger Band) we need more momentum to be convinced this rally can continue.
One market that we are keeping a close eye on is small caps.
The Russell 2000 is the leader of the Economic Modern Family. The 6-month January range high is 187.84. IWM closed below that level. Momentum tells us that after last week's mean reversion, Monday's retest of the Bollinger Band is worth paying attention to.
Putting it all together:
SPY rallies to resistance, shows "meh" momentum, but marginally clears the calendar range high--neutral to bullish HYG underperforms the SPY and rallies into momentum resistance--neutral to slightly bearish (also trading well under its 6-month calendar range high). IWM closes under the calendar range high and momentum tests resistance--neutral to slightly bullish.Bulls need to see more--more momentum, higher prices, and high-yield bonds happy.
Bears need to see more--SPY and IWM falling from here, momentum declining, and high yields bonds continuing south.
Yep, it's that close.
Information gathered from:
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Mish Schneider
MarketGauge.com
Director of Trading Research and Education