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S&P 500: Volume Analysis Raises a Red Flag

Published 02/12/2024, 03:16 AM

The media’s buzz about the S&P 500 reaching 5000 and SPY surpassing 500 this week is driven by the allure of round numbers. This milestone has been accomplished despite relatively high-interest rates compared to two years ago, a robust labor market, stable consumer spending, and strong earnings. While the overall market appears promising, a closer examination reveals that the S&P 500 and Nasdaq’s ascent has been propelled by a select group of tech stocks, while market breadth is barely holding steady.SPY-Weekly Chart

To assess market breadth, one popular indicator is the percentage of stocks above their 50-day moving average. This data is available on websites such as Barchart, which offers a range of market, option, futures, and stock data, and the good news about Barchart is that there is a free version of the platform. Stocks above or below the 50-day moving average are significant because they serve as an inflection point, with levels below it being worrisome and levels above it indicating positive market sentiment.XRT-Weekly Chart

Consumer sentiment also plays a vital role in the economy. The XRT, a sub-sector in the Consumer Discretionary space, is a key indicator in this regard. Comprising 78 stocks of nearly equal weight, XRT is currently at a critical level on the weekly chart and attempting to break out of a price channel that has been in place since July 2022.

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Moving to the charts, specifically the weekly for SPY (and this also applies to the QQQ), the concerning aspect is the relatively low volume of trading last week, considering the range of the candle. While markets can continue to rise on low volume, it remains a significant warning sign. The question then becomes, “What are the next key levels to watch?” Based on this month’s Camarilla pivots, potential resistance levels are $504.83 and $508.96, with support at $496.73 and $489.81 in the event of a pullback.

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