Stock markets are enjoying a strong start to the year but investors still aren’t confident.
They are worried about head-fake rallies amid rising interest rates and mounting corporate layoffs.
Some risks do remain, but there is solace in the charts. The market looks like it is going higher from here.
Year to date, the
is up about 6%. This week’s gains have the market definitively punching through its 200-day moving average. What is more, the S&P’s 50-day moving average looks like it will cross the 200-day moving average in a day or two.
It is a good sign. And if the stock market closes higher today, there is more room to run.
Breaking through 4,020 on the S&P puts the next resistance in play at about 4,220, according to Fairlead Strategies founder and technical analyst Katie Stockton. That is up another 4% and a good interim target for traders to focus on.
There are still risks.
“With overbought conditions widespread and a good deal of macro and fundamental news for the market to contend with next week, we would not position for follow-through unless a breakout is confirmed,” Stockton wrote in a Friday report.
For confirmation, she wants to see the S&P close above 4,020 Friday and 4,048 next Friday.
Overbought is a term traders use to describe a situation when stocks go up too much too fast. The S&P 500 is up about 7% from its Jan. 3 low and many stocks have, well, ripped year to date.
(ticker: TSLA) stock is now up more than 70% from its 52-week low on Jan. 6.
Fundstrat Managing Partner Tom Lee is feeling more bullish, too.
“The S&P 500 is now five days above the 200-day moving average,” Lee wrote in a Friday report. “This is the longest stretch since the start of this inflation induced bear market and really argues the ‘unpopular view’ is in fact the new central case.”
His unpopular view is that inflation hit a wall in October and will come down faster than others expect. He is bullish on markets and large tech stocks. Lee is particularly pleased the market is up after Friday’s Personal Consumption Expenditure, or PCE, inflation report came in about as expected and lower than the prior reading.
Not everyone is as bullish as Lee. It is said that bull markets climb a wall of worry, and while this might not be a bull market, there is a lot of worry. Looking a little further down the road another chart-based indicator can help soothe investor nerves.
For markets to keep going higher early in 2023, “getting back above the 200-day moving average definitely is necessity, but it’s more important to eventually see the long-term average finally start to turn higher,” says CappThesis founder and technical analyst Frank Cappelleri. “That won’t happen right away, but if or when it does, it will tell us that enough accumulation has happened under the surface to support a material trend change.”
Technical analysis of a stock or stock market is only one tool in an investor’s toolkit. It tells a story about when investors are feeling more bullish or bearish and at what levels, in the past, their opinions changed.
It can benefit anyone, but not every problem in the market requires the same tool. So investors, depending on how they like to invest, should pay attention to other tools such as corporate fundamentals.
Write to Al Root at firstname.lastname@example.org