Shrugging it off

Weekend Market Update - March 31, 2023

Andrew Moss, CMT

Mar 31, 2023

The Markets

The first quarter of 2023 is over and stocks are up.

SPY 0.00%↑ is up +7.50% YTD.

QQQ 0.00%↑ is almost three times that, +21.34%

All while we have -

Higher inflation
Higher interest rates
Tighter monetary policy from the Federal Reserve
and a Banking Crisis!

We did just have a banking crisis, right?

Steven Goldstein @AlphaMind101

Does anyone remember the March 2023 banking crisis?

The 16th largest bank in the country, Silicon Valley Bank, is gone.

Credit Suisse had to be bailed out; purchased by UBS at fire-sale prices.

What do we know about markets that don’t do what they’re “supposed” to do?

When stocks “should” do something, and they don’t, that’s useful information. When stocks rally on lackluster, or even disappointing news, that’s also useful information.

It would be hard to argue that there hasn’t been a reason for stocks to go lower. Some would even say the recent news and events should’ve taken it drastically lower.

Yet here we are.

Up for the month. Up for the quarter. Up for the year.

The implications of this type of action have been bullish.

Here’s Ryan Detrick, CMT with the stats.

Ryan Detrick, CMT @RyanDetrick

Here are the previous 23 times the S&P 500 gained >5% two quarters in a row. Higher 20 times and up 13.5% on average a year later. Look at those dates, they didn't happen right before a new bear market took over is my big takeaway.

Ryan Detrick, CMT @RyanDetrick

Here's a chart of the 23 previous times the S&P 500 was up 5% or more back-to-back quarters. If you squint, it appears big drops soon after aren't normal. In fact, up and to the right appears to be more normal.

Traders and investors do better by focusing on what is, rather than what should be.

Here are the charts to show more of what is happening.

The Charts

SPY is up and out of the pinch zone, that just last week seemed to have prices locked in congestion. It zoomed right through the 407 pivot from early February to close at 409.39. Next up is 418.

QQQ confirmed the breakout today and moved all the way to the 320 pivot. The next pivot higher now is 333.

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IWM has averted disaster and is back above its 8 and 21-day MAs. Next up is the 200-day MA at 180.81, and the swing high anchored VWAP. That could be significant potential resistance.

DIA Even the Dow 30 is moving higher and through its 50-day MA.

DXY The Dollar is doing its part to help, moving steadily lower.

VIX Volatility feels almost non-existent compared to where it was last October.

Again and again

Patterns in the market repeat because human nature repeats. In fact, human nature, that is human emotion, never really changes. It’s fascinating to watch the effects show up over and over again. That really is the beauty and utility of technical analysis.

This next chart was created and made famous by Justin Mamis (a well-regarded chartist, author, and technical analyst) many years ago to demonstrate some of the bigger patterns of investor sentiment. It more recently made the rounds via Helene Meisler at last year’s CMT Association Annual Symposium.

The patterns recur time and again across history and this chart is often revisited during down markets. Sentiment can be an enlightening component of technical analysis. Assessing how the masses feel about things can be telling. While chart comparisons may never be identical, they do often “rhyme.”

Looking at it now it’s striking how amazingly similar it looks to the current chart of the SP 500. And it begs the question, would SPX 4200 signal the “Denial” stage of the move?