Bullish Numbers with Very Little Progress

The closer the S&P 500 gets to 4,100 the greater the selling pressure will be. As will be discussed in this article some indicators are displaying bullish numbers. However, the S&P 500 is still stuck below 4,000.

There are a couple of ways to see the current situation, if we want to see how much has been lost from the previous high, below are the losses, a couple of the most important indexes are still in Bear Market territory (a loss of 20% or more from the previous high):

We can also analyze the situation from the perspective of the amount of gains from the lowest point, a couple of indexes are close to officially being in a Bull Market (a gain of 20% or more from the previous bottom):

Market Overview

The weekly downtrend of the S&P 500, that I keep posting every week, is still intact. Characterized by the inability to move past the +1 Keltner Channel (yellow highlighted areas) and reaction rallies when the index gets to oversold conditions (-3 KC or below). I have three pilot trades open, I still have a low level of confidence that the latest rally will be a strong and sustainable movement. In order for me to increase the risk in my trades, the S&P 500 would at least have to close above 4,150.

S&P 500, weekly chart, you can click on the image in order to magnify it

During the next trading week of Jan 23-27, I see very little possibilities that the index gets to the first milestone of 4,150. Even less likely that it rallies to some level close to 4,350 where the weekly downtrend structure would be damaged.

I have mentioned multiple times that during all 2022, the index was able to reach the +3 KC three times, followed by sharp declines (yellow highlighted areas). During the same timeframe, the index never went above the +3 KC. Currently 4,150 and 4,350 are way outside the +3 daily KC (green and blue dotted lines). An immense amount of buying would be required to take the index above the +3 KC and keep it there all week long without a pullback.

S&P 500, daily chart, you can click on the image in order to magnify it

The New Highs and New Lows numbers (NH-NL) turned bullish the last couple of weeks. Even with the amount of stock reaching New Highs, I don't see much progress in the indexes. I have also traded multiple long positions as pilot trades and they haven't been incredibly successful.

Industries

From the 68 Industries that compose the Global Industry Classification Standard (GICS), the amount of Industries that have their weekly downtrend damaged has increased and now it's 30 of them. There are 23 Industries with a solid weekly downtrend still in place. The 'Construction & Engineering' Industry ($SP1500#201030) and Biotechnology ($SP1500#352010) continue to be the ones that could start a strong uptrend.

Scenarios

Scenario #1: The most likely scenario for the trading week of Jan 23-27 is that the Bulls will continue their attempt of breaking past the 4,000 resistance. I don't foresee much success, at least during the next week. The selling pressure around 4,100 seems to be overwhelmingly higher than the demand at that level. Most likely, the attempt to rally will fail and the index will end somewhere around 3,900 - 4,000.

Scenario #2: The scenario where the decline resumes is less likely to happen. In this Scenario #2, the selling pressure increases and it can send the S&P 500 close to 3,700. The reason I see this scenario as less likely than the first one is that there were some dovish comments from the Fed during the past few days, the NH-NL numbers are still bullish. Unless there is a surprising negative event, I think that there is enough demand to keep the S&P 500 above 3,850, but not enough demand to break past 4,000.

Scenario #3: I don't think that the indexes will move sideways during the next few days. The earnings season didn't have a strong start. The same negative catalysts that moved the Market during 2022 are still present in 2023. It will be hard for the main indexes to avoid volatility until the Market finds again a clear direction.

Summary

There aren't yet, big revealing changes in the Market during 2023. If the Bulls have real strength behind the current rally, they need to jump a couple of milestones first to prove their force (4,150 and then 4,350). Until that happens I will just keep trading pilot trades to time my entries once I start to notice better opportunities. If the Bears want to recover the control, the next milestones for them would be to close below 3,700 and then 3,550.

Trading more doesn't necessarily correlate to more profits. For my way of trading, there aren't many breakouts working with strong uptrends after that. Always consider that keeping your account in cash and waiting on the sidelines is a luxury that we have as individual traders. If the current Market situation isn't yet conducive to your strategy, wait until the conditions change. Bear Markets don't last forever and even if a recession is confirmed, eventually a new Bull Market will start.