SP500 At Tipping Point | Episode 133

By Jason McIntosh | Published 19 May 2023

Trade the Trend is a weekly video focusing on where the stock market is going. It’s for investors and traders looking for technical analysis of the SP500, as well as stock markets and commodities markets in general. Jason uses technical analysis of stocks and trend following techniques to help you piece together the world’s biggest puzzle.

Where is the Stock Market Heading?

00:00 Intro

00:30 SP500 hits 9 month high (watch for this next)

04:20 Is this the Nasdaq’s Achilles heal?

06:08 This is what you don’t see on the surface

06:50 I want to see more stocks doing this (very interesting stock)

09:00 You have to see this graph (it’s extraordinary)


Please note: Charts available from video

This video is going to focus on the S&P 500. I’m going to cover the ASX 200 as well as gold, copper, and uranium in a separate video. You can watch that here. I’ve also got a fascinating graph for you. I think it really explains a lot about what’s been going on, so make sure you stick around for that. As always, this is general commentary. It doesn’t take your personal situation into account. With all of that said, let’s get into our first chart.

So, S&P 500. And it’s been a big week for the stock market. Thursday’s price action, Thursday’s close, it’s actually the highest close since all the way back in August 2022. So, that’s nine months ago. So, I think that’s a significant development in itself. The market has been able to close at this new high point. And what we’ve seen during the week, we’ve seen the S&P 500 continue to rally off this support. You can see this blue-shaded area, this support at around 40,060. Also coincides with where the 50-day moving average is coming in. So, I’ve seen the market consolidate above those areas and then rally over the last few days.

And we’re now right at the point of a key resistance area, and this is at 4200, this blue horizontal line. Market’s around 4200, which I think is a key barrier for the market. What happens over the next few days is going to be interesting, and it’s going to be important for us to analyze what really could be coming next. And we can also see this coiling pattern. The market had been coiling up over the last couple of weeks, and so, now we do have that breakout of that coiling pattern.

So, let’s just go along, and have a look at the four-hourly chart. Just get a little bit more detail on this price action that we’ve been discussing over the last couple of weeks. So, this is this support area around 40,060. And you can see each time the market has tested this area, there’s been strong interest in buying the dip. We’ve had these strong snapback rallies. And that’s always important in being an underpinning of a market, which wants to try and go higher. And with the market, what we’ve seen, we’ve seen this impulsive rally out of this sideways compression-type consolidation.

What’s going to be fascinating now, what’s going to be fascinating on Friday is, will the bears have another attempt at selling this market back down, like they have at other occasions where the market’s got up to around this 4200 level? And should that happen, will there be the buy the dip support? Based on what we’ve been seeing recently, I think you’d have to give a good probability to that being the case.

Now let’s jump back over to the daily chart. And like I said last week, I said momentum was to the upside, and I think that the odds were favoring a break to the top side of this range. And I think that remains the case. I think there are still people insisting that this is a bear market rally, and the market has to fall. Now, that’s entirely possible. The market could do anything, but insisting the market has to do something, I think is just a dangerous strategy. It’s a bit like standing in front of a steamroller, and insisting that it’s going in the wrong direction that it’s got to stop. You might not agree with what’s happening, but I think fighting momentum I think is a dangerous strategy. I think it’s dangerous to your financial health. You don’t have to always go with it. You can sit on the sidelines, but fighting it is… I just don’t think that’s a good play.

And what I want to do now, I want to have a look at the NASDAQ because it’s telling its own story from the week, which is also fascinating. Huge week, really big week in the NASDAQ, 13-month high. So, we haven’t been up here in the NASDAQ since…you got to head all the way back over here to around April last year. So, big week in the NASDAQ. Trend’s clearly to the upside. It’s largely been driven by those big tech names, the Microsofts, the Apples, the Alphabets. They’re the ones which are really lifting the market. And it’s interesting when you go along and have a look at… So, this is the NASDAQ 100.

Let’s go and have a look at an equal-weighted version of the NASDAQ 100. And it tells a somewhat different story. So, we’re seeing the NASDAQ 100, the Capitalization Index up a 13-month high. The equal-weighted has not done that yet. You can see that it’s still below these previous high points. It’s a different chart structure to what we’re seeing in the NASDAQ. And I think we can say this is clearly lagging, and it’s a real example of the disparity that we’re getting in market breadth where we’ve got a few names doing the heavy lifting, and a lot of the stocks not really coming along for the ride. That said though, this does remain a positive structure. It does look like an overall basing formation, and it does seem to be breaking higher.

Another way to look at this idea of breadth is to look at the NASDAQ on an advanced decline basis. So, I’m going to click over this chart. So, what we have at the top, this is the NASDAQ 100, which we were looking at earlier. What I’ve done here, I’ve put on an advanced decline line for the NASDAQ. And what really stands out here is that we’ve got a series of new highs in the NASDAQ 100, but then, of course, we come down here to the market breadth, and it’s not heading in the same direction. It’s been in decline. Now, maybe this is going to break upwards. Maybe we’re going to see this breath story change, and we do get more stocks participating in the rally.

For instance, so just this week, just Thursday actually, I was looking at the price action for Netflix. So, Netflix was interesting. This is one of the stocks, which has been lagging the market over the last several months. It’s been in a sideways consolidation since making a multi-month high in February. Since then it’s been in a sideways consolidation. What we had on Thursday was really interesting. We had a big upside day, and it was accompanied by heavy volume. So, that’s an interesting sign for a stock like Netflix. It’s bouncing off the moving averages. We have rising moving averages, the 50 and 100 days, that have consolidated around those averages, and now we’ve got that strong break. It’s going to be interesting to see whether we get follow-through buying over the next few sessions, and what the volume profile looks like on that buying.

So, maybe we start seeing more instances like Netflix, and maybe that can help turn this market breadth situation around. But I think at the moment, we do need to continue to be aware that not all stocks are participating. In fact, there’s a big section of stocks, which are not participating in this strong rally. And, of course, a healthy market has broad participation. I don’t think this is a reason to be bearish, but I think it is a reason to be cautious, and that is cautious can be in your position sizing, caution can be in your cash levels. There are various ways to be cautious to the market, but still participating in the event that this market continues to run, and momentum is to the upside.

Now, if you’re getting value from this, please hit that like button. Please leave a short comment, just “Hey, thanks for the video.” It tells YouTube people are watching, and YouTube shows more people, and that helps me a lot. So, please do that. Hit the subscribe button also if you haven’t already. And come visit me over at motiontrader.com.au.

Now, I want to finish up with what I think is a really, really interesting graph. Now, this turned up on my Twitter feed during the week. And so, let me just explain what’s going on with this. So, this is the S&P 500, the graph that we’re looking at going up. And what we have down here, this is the positioning in the futures market, in the S&P 500 futures with actually using the E-Mini. It’s a smaller version of the full-size S&P 500 futures. And the positioning is for non-commercial players. So, this is typically made up of the large speculators. It’s showing what their net position is. So, when it’s red with these circles around it, it’s showing net positions are short. When it’s blue, well, they’re long.

And look at what’s been happening over the last…must be six or so months now. So, pretty much around these lows from around June last year, the net positioning really started to become heavily short, and it’s remained heavily short despite the market rising over the last, what is it, six to nine months now. You can see that. You can just pause this video and go back and study what’s happened at these previous periods. But ultimately what typically happens is that the shorts get unwound, and it provides a tailwind for the market as the market rises.

This is one of the things I’ve been saying for quite a few months now. It’s hard to see the market selling off when there’s so much negativity, when there are already so many shorts in play. It’s hard to get a crash scenario when so many people are already prepared for a crash. So, none of this, of course, means that we’re going into a new bull market or anything like that, but it does give some perspective as to why this relentless rise potentially has been happening because there already is so much short interest in the market. So, some good things to think about there, hopefully.

Let’s leave it there for this week. I continue to think the play in this market is to remain cautiously long. That’s how I’m playing it. But let’s see where the momentum takes us over the next week. Sure to be an interesting few days. So, thanks for joining me. I look forward to talking to you again next week. Until then, bye for now.

Please see video for more detailed analysis and charts

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Meet Jason

I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney. 
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.