The first thing I always look at are the technical conditions. To me, this is a very simple price/volume analysis. This is how it currently looks in the S&P 500 and NASDAQ 100:
S&P 500 ($SPX):
On any uptrend, I consider the 20-day EMA as my first key short-term support. Normally I rate the probability of a successful test as quite high – unless there is a negative deviation. In this case there is one. So we have to consider that the odds have shifted a bit more towards a 50-day SMA test (pink arrow).
NASDAQ 100 ($NDX):
We were treated to a mostly direct push on the long side. Selling in the short term could be problematic as we haven’t seen an extended decline in a while and there is a catalyst that could push stock prices lower in the short term. Higher government bond yields have caused a falling market over the past year and a half. While I believe the stock market has weathered the rising yields very well in 2023, it’s certainly not immune to a sell-off.
There are signals telling me that this decline will only be temporary. The main signal is that we haven’t seen any meaningful rotation into defensive sectors. Since the S&P 500 peaked at 4425 on June 15th, we have seen slightly higher prices ahead of the last few days’ selling. If you recall, the final high in late 2021 was accompanied by a strong rotation into defensive sectors. Here is the performance of all 11 sectors over the past three weeks:
Does this look like a mass exodus from aggressive sectors? I don’t think so considering four of the top six sectors are aggressive sectors as of June 15th. And most of the sales in the technology space (XLK) have been through gaps. Check out the last few days candles on the XLK:
We’re seeing a third straight tech drop, but are you seeing any intraday selling? There is not a single red filled candle of significance this week as the XLK is trending down. It’s all gap downs again. We saw this in the first five months of 2022 as retailers were scammed by Wall Street. Months of gap declines and early morning selling ensued followed by significant accumulation. This week was nothing more than a mini version of the manipulations we’ve witnessed repeatedly over the last year.
I’ll be spending a lot of time tonight presenting our Bulls-Eye Forecast: Half-Year Update, highlighting strengths and weaknesses in the first half of 2023 and what we should expect in the second half. This is a FREE event open to the public. So I hope you will be there. If you register, and as a further incentive to join me, I will provide you with a “Money Flows” PDF that highlights much of the manipulation that has taken place on Wall Street since the 1950’s. I believe every investor/trader should be aware of this manipulation which is why I am including it for FREE. Please register NOW as this mandatory event is taking place today at 7:00 PM ET. To register CLICK HERE. After registration we will immediately send you this FREE “Money Flows” PDF that will have a major impact on your approach to investing/trading!
Happy trading!
Tom
Tom Bowley is the chief market strategist of EarningsBeats.com, a company that provides a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR) that provides guidance to EB.com members every day the exchange is open. Tom has been bringing technical expertise here at StockCharts.com since 2006 and also has a basic public accounting background which gives him unique skills to tackle the US stock market.
