Most major stock indices made new 2023 highs this past week ($RUT; IWM is still a little shy of that). Thus, the charts remain positive, and a "core" bullish position is warranted. There are several gaps on the $SPX chart, and a pullback to support at 4440 would fill all the recent ones. There is further support at 4385, and then major support at 4330 and 4200. A violation of the support at 4330 would be a very negative development and would require a change of our "core" position, but a pullback of that depth doesn't seem likely right now.
On the upside, the next resistance area is at 4650, the March 2022 highs, which occurred early in the 2022 bear market. Beyond that, the all-time highs at 4800 could be in play.
The last five trading days have seen $SPX rally strongly, breaking out to new 2023 highs. This keeps the $SPX chart bullish and keeps us in our "core" bullish position. $SPX has now reached the first (minor) resistance area at 4510. Above here, the next significant resistance is at 4630, and then the all-time highs at 4800 would be within reach.
Stocks charged ahead to a new yearly high at the end of the second quarter, but have faltered a bit since then. A rather sharp pullback occurred yesterday, based on fears that the central banks around the world are not done raising interest rates. That's news? I guess it was to those who sold yesterday. In any case, that pullback closed a couple of upside gaps on the $SPX chart. However, it has left a potentially important island reversal on the $SPX chart now (circled area on the chart in Figure 1).
The correction that took place following June option expiration (the 3rd Friday) lasted just about a week, and prices have rallied since then. That decline bottomed out at about 4330 very nearly the peak of last August. So that is the first support level now. There is further support at 4200, the level which had represented resistance for so long. Any pullbacks should find ample support there, but if $SPX were to fall back below 4200, that would represent a very bearish development.
When $SPX broke out over 4300 on June 9th, a strong rally was unleashed. Perhaps that rally got carried away, as several indicators moved into overbought territory, and the Index itself traded above its +4sigma "modified Bollinger Band" (mBB). That exhausted a lot of buying power it seems, and now the Index is pulling back.
Now that $SPX has broken out of the extended trading range (essentially 3800-4200, which lasted for over six months), it is gaining momentum as traders are trying to "catch up." This is beginning to create overbought conditions, but "overbought does not mean sell."
The broad stock market confirmed the breakout over 4200, with only a minor consolidation. Now it is attempting to break out above 4300, which is the next resistance level. If that is accomplished, then there should be somewhat clear sailing overhead for a while.
Equity-only put-call ratios remain bullish, as they continue to fall. They are in overbought territory, but "overbought does not mean sell."
The market finally looks like it is breaking out on the upside. After numerous failed attempts to exceed and hold above 4200, $SPX seems to be on the way to doing just that. If it closes above 4210 today (June 2nd), that will be confirmation of an upside breakout.
The next target and resistance is the 4300 level the highs of last August. If that can be overcome, then the picture is quite bullish, with only 4650 (the highs of March 2022) and 4800 (the all- time highs) as obvious resistance areas.
The trading range environment for $SPX is still in place. The horizontal lines on the chart in Figure 1 depict the extent of the three most prominent ranges that are in place right now. Most recently, the tightest range is 4100-4200. A slightly wider range, 4050-4200, exists if one extends back into April. Then the larger range, roughly 3800-4200 encompasses all of 2023 and even the last part of 2022. Of course, 4200 is the top of all of these ranges. One can be sure that aggressive traders have been and will continue to short the market at 4200. If it eventually breaks out to the upside, there will likely be some heavy short covering to accompany that move.
Once the market perceived that the "debt ceiling crisis" might not be a crisis after all, it began to rise again. $SPX is right at the top of the trading range and is attempting to break out. Those are very positive things. But before we jump on board with both feet, remember that 1) politicians can't be trusted, and 2) there have been some rather severe false upside breakouts by $SPX in the last couple of years.
