Since the beginning of June, people are playing “catch up” in the domestic equity market by buying relative strength laggards (economically sensitive, non-growth, regional banks, small/mid-caps, energy) and taking profits and/or reducing buying the former relative strength leaders (large and mega-cap growth).

It was helpful getting on the right side of our benchmark, the S&P 500 (SPX), in mid-October/November 2022, noticing the relative strength shift to Growth in late January, the start of price stability and basing by the Bank complex and the recent uptick by Small Caps.

As with the negative Advance-Decline Line divergence from late 2021, A/D Line divergences can last a while before being felt. While most technology-related proxies (SPX, NDX, XLK/SMH, “FANG+,” etc.) are reflecting Mad Magazine’s Alfred E. Neuman slogan, “What, me worry?” A/D Lines are again negatively diverging from underlying equity market proxies.

KISS (Keep It Simple, Sam): A push below 4098 would increase the odds of a retest of 4050 to 4045 support, which, if broken, would signal a bearish trend reversal. Alternatively, a push above resistance between 4190 and 4218 would suggest a continuation of the move higher since mid-March.

Having absorbed and contained some issues last week (Fed meeting, AAPL earnings, and April jobs report), on tap this week is the CPI (Wednesday) and PPI (Thursday). Day Hagan’s view is that inflation has peaked.

Much of the focus this week will be on what I call the noise: the Fed’s focus on inflation (May 3 interest rate announcement), additional economic reports capped off Friday by the April jobs report, and AAPL’s EPS report Thursday. Enjoy the whine—increased volatility in equities and interest rates.

The Ned Davis Research Catastrophic Stop Loss Model, part of our Smart Sector Global Balance Portfolio Strategy, remains, since November 2022, fully invested versus its S&P 500 benchmark. If our indicators reverse and suggest otherwise, we will follow.

While I’m not a fan of the entire Commodity complex, there are areas of improving and/or bullish absolute and/or relative chart configurations. This includes Silver and Gold.

The Ned Davis Research Catastrophic Stop Loss Model has been fully invested since November 2022. Compared to its S&P 500 benchmark, it has remained on the correct side of the trend.

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.