July 20, 2022
From last Thursday’s intra-day low through yesterday’s closing high, the S&P 500 Index is up 5.8% and broke above its declining 50-day moving average (dma). The track record of buying upside breaks of the 50-dma is spotty, and worse than that when the 50-dma is several standard deviations below the declining 200-dma as it is now. On the S&P 500 chart below, you can see that there is little in the way of supply (aka resistance) all the way up to almost 4200. That would be another 6% move up on the index that might come relatively easily if more companies report crummy numbers and watch their stocks jump up +7% on the news like Netflix did last night and this morning.
All this is well and good, but unless we get some serious broadening out of the rally across most sectors, market-caps and styles – technically defined as strong breadth thrusts – the current rally, even if it grows to a double digit one, will likely fail and be classified as the bear market kind. The kind you use to sell strength.
Be well,
Mike