From a fundamental perspective, the debt limit will be a financial and psychological drag on the stock market until the political and economic self-harm ends, but for now spending can continue thanks to the Treasury cash balance (TCB) and “abnormalities”. measures” for the Treasury.
In this section, we look at the market from a strictly technical perspective.
In a very long time (years and decades)The SPX continues to ride higher at the middle line of the Raff retracement as it has done many times over the past 30 years. without entering a “full-frontal” bear market. (blue-ovals below). The common belief that a 20 percent bear market pullback is arbitrary is not technically supported; A break below the lower Raff regression line (lower red ovals) is required for technical confirmation of a bear market.
A closer look shows that the SPX is above both the 40 and 8-month MA, and technicals are recovering from oversold levels.
Over the last 100 years, the stock market has shown a “step” pattern of trading periods (steps, in purple) lasting ~12 years, interspersed with rallies (rises) lasting ~20 years. So far, we’ve been in one of these big rally periods for nine years, which suggests we’re not alone. half way through this huge market (graph below):
In closing the last 9 years, we can see that a Fractal repeating the “step-by-step” pattern, where trading range steps last ~1-year and intermediate rallies last 2-3 years. According to this pattern, the SPX is moving away from the bottom of the trading range and should reach new highs in late 2023 (chart below).
Now back to a short time scale (days and weeks), The weekly SPX has broken above the upper Raff line and is now facing resistance at the 50-week MA, 4038. Before it breaks above this resistance, we expect some hesitation.
On the daily scale, the SPX has bounced back from resistance at the 200-day MA, but there is dual support below 3920 (38% Fibonacci retracement and 50-day MA) and then again at 3757 (23.6). % Fibonacci return). Other technicals are higher, but they can stay that way for a while without causing problems for the SPX. Some neutral-weak movements in the market are expected for the next week or two (graph below).
Evaluation: The technical range is broad (for the SPX), but the technicals have reached very long-term levels, which means we can expect several days of weakness for the SPX (bottom chart).
The move passed the ballpark, as it did in May 2020. This doesn’t mean the SPX can’t go higher, but it does suggest a “breather” like we saw in June 2020 before we continue the rally.
The RSI voltage IT oscillator has crossed 70, which means that the chances of a pullback in the SPX have increased, although there is room for it to rise further (bottom chart).
The McClellan RSI is close to the extended level of 70. This means the SPX is nearing a short-term pullback (chart below).
In summary: The long-term primary trend remains bullish. The SPX is breaking out from the bottom of the fractal trading area and is likely to reach new highs before the end of the year. Over the next two weeks, the market is expected to weaken (but not collapse) and this should provide an opportunity to increase long positions in broad ETFs such as SPY, QQQ, and IWM.