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Momentum Vs. Price: Is U.S. Stock Market's Rally Over?

By Michele SchneiderStock MarketsJan 24, 2023 12:16AM ET
www.investing.com/analysis/momentum-vs-price-is-us-stock-markets-rally-over-200634635
Momentum Vs. Price: Is U.S. Stock Market's Rally Over?
By Michele Schneider   |  Jan 24, 2023 12:16AM ET
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US500
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  • SPY rallies to resistance show “meh” momentum but marginally clears the calendar range from high-neutral to bullish
  • HYG underperforms the SPY and rallies into momentum resistance-neutral to slightly bearish (also trading well under its 6-month calendar range high).
  • IWM closes under the calendar range high, and momentum tests resistance-neutral to slightly bullish.

Last week was the reset of the January 6-month calendar range. For the S&P 500, that range sits at 3770-4000.23.

SPY Daily Chart
SPY Daily Chart

My prediction for the yearly range is much wider or between 3200-4200. That is based on the position of two critical monthly moving averages.

Looking at the 6-month range, today’s high was 402.64, but SPY closed at 400.52, marginally above the range and well below the day's high.

Also interesting to note is the 50-week moving average, which SPY has yet to clear.

A positive action, yes. The signal to go full-blown long? Not so fast. We'll have to consider what the momentum is telling us.

Before we look at momentum, a couple of other interesting areas of potential importance are ahead of lots of earnings, the PCE number, and a Federal Reserve blackout period.

First off, there are the junk bonds and the 2 ETFs we watch, iShares iBoxx High Yield Corporate Bond ETF (NYSE:HYG) and Bloomberg High Yield Bond ETF (NYSE:JNK).

Both are crucial to the market breadth, closed red, and are underperforming SPY. That makes the exuberance right now suspect.

HYG Daily Chart
HYG Daily Chart

Note the bottom of the chart. The blue line sits well under the red line-that means underperformance.

Our Real Motion Indicator helps assess growing, slowing, or changing the momentum in any tradeable financial instrument.

As noted by the chart, in high-yield grade bonds, momentum traded sideways after a sell signal (mean reversion) last week.

Circling back to the SPY, momentum reflects the resistance right near the calendar range.

Just under the dotted line (Bollinger Band), we need more momentum to be convinced this rally can continue.

IWM-Daily Chart
IWM-Daily Chart

One market that we are keeping a close eye on is small caps. The Russell 2000 is the leader of the Economic Modern Family.

The 6-month January range high is 187.84. iShares Russell 2000 ETF (NYSE:IWM) closed below that level. Momentum tells us that after last week’s mean reversion, Monday’s retest of the Bollinger Band is worth paying attention to.

Bottom line

Bulls need to see more-more momentum, higher prices, and high-yield bonds happy.

Bears need to see more-SPY and IWM falling from here, momentum declining, and high yields bonds continuing south.

Yep, it’s that close.

ETF Summary

  • S&P 500 (SPY): SPY has crossed the 200-DMA and is now slightly above it but is still in a narrow price range below 50-DMA. Held pivotal support, and now what was resistance is support at the 200-DMA, and resistance is 405 overhead.
  • Russell 2000 (IWM): IWM filled the gap and continued to hold the 200-DMA and overhead resistance at 189.
  • Dow (DIA): The index is back under the 50-DMA STILL as industrials lose ground to tech, but holding support at 335 and looking to cross the 50-DMA at 336.07.
  • Nasdaq (QQQ): QQQ crossed the 50-DMA on Friday to close above. The first resistance level is at the 200-DMA and closing slightly below it.
  • Regional banks (KRE): KRE is close to crossing 60.72 (50-DMA). The first level of support is 58, and the resistance is 50-DMA.
  • Semiconductors (SMH): SMH is still holding key support easily at the 50-WMA and 200-WMA. 221 support and 228 resistance.
  • Transportation (IYT): It is still holding 225 key support here and now, holding the first level of support, holding 227.
  • Biotechnology (IBB): It is still the best sector with 132 key support holding and holding the first level of support at 134 now with 137 resistance.
  • Retail (XRT): XRT is holding pivotal support at 63. Resistance at 66.
Momentum Vs. Price: Is U.S. Stock Market's Rally Over?
 

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Momentum Vs. Price: Is U.S. Stock Market's Rally Over?

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Comments (1)
Lazaros Kotsidis
Lazaros Kotsidis Jan 24, 2023 3:21AM ET
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Junk bonds divergence. Us bonds bull. Dollar bulled. Stocks indecies bulled. whos lying?
하선 이
하선 이 Jan 24, 2023 3:21AM ET
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idk. u tell me
 
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