Within the context of a supportive, internal, price-related backdrop, last week I twice suggested tightening up short-term (trading) stops or taking short-term (trading) profits in whole or in part. In today’s report, I expand on one reason why—beyond the SPX trading over 2.5 standard deviations above its 50-day MA, an overbought condition—I still suggest this near-term tactical move.

With a Fed announcement Wednesday and many corporate earnings reports this week, considering domestic equity market indices’ proximity to resistance (previous price peaks and downtrend lines), will domestic equity market indices break out topside or pull back before moving higher? I’d like to see the latter, won’t be surprised by either, and expect volatility to go up again, in both directions.

Although there has been internal improvement since late 2022-early 2023 (Figure 1), equity market proxies (plus sectors and individual stocks) rarely go up in a straight line because “things” get overbought short-term. Like now. With the Bulls still in control, don’t be surprised if stocks pause/pull back from recent gains.

Although there has been internal improvement since late 2022-early 2023 (Figure 1), equity market proxies (plus sectors and individual stocks) rarely go up in a straight line because “things” get overbought short-term. Like now. With the Bulls still in control, don’t Within the context of a multi-month trading range, internal measuring statistics (outperformance by equal-weighted equity index proxies, improving number of new 52-week highs/contracting number of new 52-week lows, NYSE Advancing volume, etc.), aided by a further decline by the U.S. Dollar, are supporting a move higher by the S&P 500—towards 4050-4100+/-.

Equity market volatility occurred in both directions in 2022 and I believe it will continue in 2023. Let volatility in both directions work in your favor, not against you.