Narrow leadership, comparable to what we have seen since the beginning of 2023, is worrisome. Bob Farrell once said, "Markets are strongest when they are broad, and weakest when they narrow to a handful of blue-chip names." Also, the small positive divergence in “Small-Cap land” must be built on!

During our recent technical analysis Chart Jamboree, we spent a lot of time addressing whether Wall Street is putting its head in the sand about the effects of quickly rising bond yields. Last week’s tape action and this weekend’s banking system news answered our question with a resounding “yes, it is.”

Wall Street is focused on Fed Chair Powell’s semiannual monetary policy testimony today and tomorrow and the employment report Friday. With that backdrop, the short-term chart configuration of domestic equity market proxies remains neutral. From an intermediate-term perspective, with excessive optimism (sentiment) relieved, the weight of the evidence supports the prospect of the uptrend eventually continuing, as shown in last week’s Chart Jamboree.

Everyone is blaming the Fed, two nonvoting FOMC participants, and related economic reports for yesterday’s sell off and last week’s price swings, including a lot of stock-specific weakness. For me, it was the continuation of prevailing conditions: overhanging selling pressure (resistance) making itself felt (Figure 1) and upward trending interest rates. As Wall Street debates the issues, I expect further volatility and for equity market proxies continue to consolidate/pullback—SPX 4000+/- to 3950+/-.

Within the context of a supportive price pattern of a higher trough & higher peak (Figure 2), Wall Street appears frustrated as domestic equity market indices struggle with overhanging selling pressure (resistance). It’s not clear yet whether a consolidation pattern develops or if further downside probing occurs.

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.