Well, the stock market did extremely well on the two days we were off at the end of last week….and the rally had taken the S&P 500 to less than 2% from the 4,200 level that a lot of technicians have been point to as a key resistance level. (Just below the 4200 is the highs from the very end of May and the beginning of June…and just above 4,200 is the 50% retracement level of the January/June decline.) The rally of the last two days has come on good volume and breadth (although Friday’s volume was very likely skewed a bit due to it being the last trading day of the month). So, there was no question that last week was another good week…in what was as a very good month for the stock market.
Some positive earnings reports out of several tech companies (like MSFT, AAPL, AMZN, etc.) played a large role in the rally…as well as the belief that the Fed has pivoted in their tightening policy. We’re not really sure how what Chairman Powell said last week could be construed as an important pivot…especially since he said that they would continue to raise rates this year…and that the shrinking of the balance sheet is going to become more aggressive going forward. (We’d note that they’re way behind schedule on their $37.5bn per month shrinkage this summer…and it will grow to $95bn in September.)
However, the markets are definitely pricing-in a substantial pivot by the Fed. Not only did the stock market rally nicely last week, but so did the bond market. The yield on the U.S. 10yr Treasury note has dropped to just 2.65% (and below the “neck-line” of the “head & shoulders” pattern that we’ve been highlighting over the past two weeks or so). Therefore, maybe the Fed is indeed pivoting in a bigger way than it seems to us right now. Thankfully, we get A LOT of “Fed speak” this week, so it will be interesting to see if they push-back on how the market reacted to Chairman Powell’s comments last week.
Moving back to the technical side of things, we want to highlight a moving average that we talked about many times in the last two years…but have not talked about recently. It’s the 100-DMA on the S&P 500 Index. Looking at the chart below, you can see that the 100-DMA provided excellent support for the stock market for five quarters going into the end of 2021. It then broke below that moving average in January of last year…and ever since then, that key “old support” level has become a very important “new resistance” level. The S&P was able to break very slightly above that line on a couple of occasions. In fact, it got almost 2% above it in late March. However, it was not able to pull “meaningfully” above that line on any of those occasions…and it rolled-back over in a material way each time.
Well, we’re back up to this important moving average once again as we enter the month of August. This development relates to the above-mentioned 4200 level. If, (repeat, IF) the S&P 500 can break above 4200 in any meaningful way, it would not only give it an important “higher-high”…but it would also take it above a moving average that has provided very tough resistance this year. That kind of move would be quite bullish…and would give those who are saying the bear market is over some more confidence. If, however, it struggles as it tests 4,200…and rolls-over in any significant way, it’s going to be quite bearish.
That does NOT mean that we’ll get an answer to this question immediately. After the strong month-end rally, the stock market could easily pullback a little bit over the next few days to digest its recent gains. Therefore, if we see a little bit of weakness early this week, it would not necessarily mean that the S&P has “failed” at its key resistance level. It could merely be a mild “breather” before it takes a run at breaking out to the upside. However, if any decline picks up some momentum, it could take the wind out of the sails for the bulls before long.
In other words, the stock market is already at ANOTHER key juncture on the technical side of things. Yes, we stood at one just two weeks ago when the SPX was testing the 3900 level…but we ARE at another one already. Again, it will likely take a week or two before we get an answer as to which way things will playout over the rest of the summer, but we do not see a boring August either way.
Since we’ve been out for a few days, we’ll leave it there this morning. However, we cannot end without mentioning the passing of Bill Russell. It is impossible to compare players from different era’s, but anybody who doesn’t include Bill Russell in the conversation about the GOAT of the NBA doesn’t know Mr. Russell as much as they should. For us, we believe that Michael Jordan is the GOAT, but Bill Russell definitely deserves to be in the conversation (in a BIG way)…….No matter who the GOAT is, NBA Commissioner Adam Silver said something that is indisputable in describing Russell’s 11 Championships in 13 seasons with the Celtics: “Bill Russell is the greatest champion in all of team sports.”
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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