SAMT Blog
S&P500 in uptrend
07. February 2023, by Bruno Estier
Technical Analysis
The close of the month of January, or the period from November 1 to January 31 is relevant for historical statistics. A January close up or a rise in the November-January period is correlated with a bullish year from January to December. Thus, contrary to the bearish sentiment perception at the end of December 2022, the rise of the S&P500 at the end of January is producing a bullish message. Indeed, the weekly MACD is rising, and could soon be in a positive area. The weekly STO crossed up early in January and is rising strongly. The S&P500 has risen above 4000 into the Cloud. This is calling for a shift from Bearish to Neutral Price Action. Our Green Path suggests a rise from 4000 to 4150 (a Fibo 50% of the decline 4818-3491) into mid-February, then a minor pullback to a pivotal level of 4100, then a rise toward the top of the Cloud with a possible break up toward 4306 (Fibo 62%) during April. At that time, a pause between 4305 to 4150 is expected for the second quarter.
One caveat in this Green Path is the behaviour of sector leadership during 2023. On the upper panel is the Relative Strength of the Nasdaq versus the S&P500 (red dotted line). In a downtrend since November 2021, this line only rebounded in January 2023 because of the rebound in the strongly oversold stocks. Recall that past leadership (technology in 2021) is rarely the leader in a following Bull Market. The question is whether value-oriented stocks will gather enough momentum to carry the S&P500 along our Green Path. The second line (green dotted) represents the Relative Strength of the Small Caps versus the S&P500, only very gradually rising from April 2022 to the end of January. This may explain why sentiment measures have remained rather bearish so far. Finally, the third line (orange solid) is the Relative Strength of Emerging Markets versus the S&P500 rising since October 2022. This outperformance is joined in 2023 by the outperformance of European stocks, suggesting Value may outperform Growth.
The risk is that the S&P500 on a two-weekly close basis would decline and remain below the Cloud despite any subsequent rebound, following the Red Path on the chart. But it is rather unlikely. So this time, perhaps it is the Sellers who should beware…
About the author
Bruno Estier is an Independent Market Strategist and founder of Bruno Estier Strategic Technicals (bruno.estier.net). Based in Geneva, he is a global market advisor and technical analyst coach for professional traders and portfolio managers.
He is a past president of the Swiss Association of Market Technicians (SAMT) and served on the board of directors as chairman and secretary of the International Federation of Technical Analysts (IFTA). Bruno holds a MSTA from The Society of Technical Analysis (STA) in London and the CFTe and MFTA designation from IFTA.
He worked for 12 years as a technical analyst with JP Morgan in Zürich and Paris and 10 years with Lombard Odier & Cie in Geneva. He earned an MBA from The University of Chicago Graduate School of Business and a Masters in Economics from the University of Saint Gallen (HSG).
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