SP500 Hasn’t Done THIS For 12 Months | Episode 104

By Jason McIntosh | Published 27 January 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

00:32 SP500 does THIS for the first time since February

04:29 Look at what this key indicator is doing

05:28 Few people are talking about this (but they should)

08:03 [important] 3 key points about the Nasdaq (and what it means for markets)


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, gold, and uranium in a separate video, and I’ll leave a link for that in the description section below. I’m also going to show you some really interesting developments in a key market, so make sure you stick around for that. As always, this is general commentary and doesn’t take your personal situation into account. With all of that said, let’s get into our first chart.

So, we have the S&P 500 up here on the screen. And it’s been another week of really interesting price action. I think the most important or the most significant development this week has been these moving averages have now crossed. Let me just zoom out to get a close look. It’s only a faint crossing at the moment, but you can see that 50-day moving average getting above the 100-day moving average. And when we just compress this back up, you’ll see that that’s the first time this has occurred since way back here in February 2022. So, I think that’s a really important development. It doesn’t guarantee that prices are going to keep rising, but it does give another foothold. It gives another foothold to the scenario. This market may continue to try to rally maybe over the next several months or at least maybe the next couple of months during the first quarter.

And interesting this week we saw prices pull back, well, this is late last week, pulling back towards the moving averages and also towards support at around 3900. And that pullback didn’t last very long before we got a strong rebound in the opposite direction. So, for me, that’s more evidence that the dips are being bought. And I think that when dips are being bought, that’s a critical step in any sustainable advance. You’ve got to see buy the dip occurring for an advance to have legs and continue to run. And we really do need to see that accumulation of pullbacks. And that’s something that was absent for most of last year. Last year, it was all a case of sell the rally. We would get the rallies and then the market would quickly sell off. And that’s different to what we’re seeing now. We’re seeing a market which is holding near its highs and is now being supported on pullbacks. It doesn’t mean the market can’t continue to have these pullbacks and potentially some sharper pullbacks as well, but the general tendency has been for the prices to rise with the pullbacks being supported.

Now, let’s just jump over to the 60-minute chart, over to the hourly chart for a moment. Just have a little bit look at the price action in more detail. And what you can see from this is… Well, first, I’m just going to draw in… So, this is this big support region we have around that 3900 region. And just on a shorter-term basis, you can really find that up because you can see these levels quite clearly where it links up these highs, low, and the most recent pullback came right back to that 39,000 region before we got the rally. And then last Wednesday, we had another attempt to sell off, and the market quickly rebounded. So, quite positive price action when you break it down on that hourly basis.

So, coming back to the daily chart. And I thought when I did this video last week that we may have seen some more downside. I thought this market could have pulled back close to these December lows to build more of a launching pad for trying to push higher. That hasn’t happened. It’s actually quite encouraging that the market wasn’t able to follow through on this sell-off we started seeing last week, and that we did get that rebound so quickly. So, to me, that suggests that the path of least resistance is to the upside. Again, that doesn’t mean that we don’t get pullbacks, but the path of least resistance does seem to be upwards at this point in time.

Now, I want to show you something else which I find interesting. I want to look at the advanced decline line for the New York Stock Exchange. So, up above, we’ve got the S&P 500, and this is the advanced decline line in this lower box. Now what’s really interesting here is the advanced decline line is now above its December and its August peaks. So, of course, you can see where it coincides on the S&P 500. The S&P 500 is yet to break these peaks, but when you look at the advanced decline line it has. So, to me, that’s a sign that the market internals continue to improve. We’ve got more stocks rising and adding to this advanced decline line, and I think that structurally does strengthen the markets.

And whilst we’re talking about internal strength, I think it’s also interesting to have a recap on the equal-weighted ETF for the S&P 500. Now, I talked about this last week. It’s an Invesco S&P 500 equal-weight ETF. So, of course, the S&P 500 is a capitalization-weighted index. So, the biggest stock has the biggest share of the index. Equal weight is, well, the 500 stock and the larger stock are weighted the same. So, what I find interesting with this is that just this week, the ETF closed at its highest level, and this is on Thursday. So, on Thursday, it closed at its highest level since back here in August. And it’s also testing into a resistance area.

So, just quickly drawing this resistance band which I’m watching, say we are through here. We’ve got a resistance band on the ETF. Comes in at around about 151. And you can see it’s been technically active region. They’re never an exact, or often they’re not an exact fit, but it gives you a clear indication of where the resistance points are. We’re right into that region now. And the moving average is positive, the moving average is trending upwards. So, that’s an overall positive structure for me. And, of course, the price is above these moving averages.

So, this doesn’t mean that we can’t get some sort of a pullback, particularly with the market testing into resistance. But the overall structure when I look at this equal-weighted ETF, I think it looks good. And it suggests to me that some of the best opportunities may well come from outside the biggest cap stocks. And this is why I think the equal-weighted index is performing relatively better than the S&P 500 because when you equal-weight them, we’re finding that those stocks, as you come down through the rankings, are performing better than some of the big names. So, a really interesting way to look at where you might find performance within the S&P 500 on an individual stock basis.

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Now let’s move on to the NASDAQ. Really interesting. Now NASDAQ, as we know, has been the weakest component of the U.S. indices, but the price action is improving, particularly over the last month. So, there are three points that I want to talk about here. So, the first point is that we’ve recently, just in the last week, broken through this resistance area at around 11,600. So, you can just see through from around May last year, May 2022, it’s been a technically active region. It kept the market in early January, but as we got to the tail end of January, we’ve now got this breakout through the resistance region. The NASDAQ is now above the moving averages, the 50 and the 100-day moving averages. Moving averages are yet to cross, but they’re starting to turn higher, which is encouraging, and the market is above the moving averages.

And the third point to discuss is this bullish wedging formation which has been tracing out since back in June. And it looks like the NASDAQ now is starting to break upwards from this pattern. So, the way these work, the count or the measured move out of a wedge is typically back to the starting point or the highest point of the wedge, which when we just measure that out, it’s roughly around 15% above where the market currently is. So, there could be some… If this continues to gain momentum from here and it can maintain this foothold we’re getting, it does have that potential to rally back up towards the August high which is around a 15% gain. So, it’s going to be interesting to see whether the NASDAQ can follow through with that.

And when you couple that with the head and shoulders formation or the inverse head and shoulders formation on the S&P 500, which I’ve spoken about… I spoke about that last week. So, go back and look at last week’s video if you are not aware of that. Also, we’ve got a positive setup in the Dow and the Russell 2000. Again, I spoke about that in last week’s video. I think there’s a real possibility that these markets are going to try and rally at least into the first quarter of this year. It doesn’t mean that it’s time to throw caution to the wind.

I don’t think that’s the case at all. I think we have the potential for upside over the next couple of months. We want to see how that upside develops if that is indeed what happens. But I’m well aware that the macro environment at the moment, it’s not supportive, but maybe the price action is hinting. It’s things which could be changing. We don’t know. That’s why we need to watch the price action because the fundamental backdrop, maybe it changes. But at this stage, we can’t tick all the boxes. So, that’s why I say I don’t think this is a time to be throwing caution to the wind. I think it’s a case of let’s play this. I think it’s a case of play this and see where the momentum takes us, see where the momentum goes over the next…whatever period it may be.

And for me, that’s about being selective with the stocks that I buy. I’m looking for stocks with upward momentum which are above their moving averages using risk management and also maintaining some cash reserve because it’s not about… As I say, I don’t think it’s the case of going all in on this market. There are definitely risks with the market, but we can’t ignore positive momentum when we see it. So, play the momentum, use risk management to ensure that things turn ugly there’s an escape path. That’s always the most important thing. You’ve got to manage your risk. You’ve got to have your exit strategy. So, I hope that’s been interesting, hope has been helpful. Thanks for joining me. I look forward to talking to you next week.

Please see video for more details 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.