Quick Note: Losing Strength

The Spring Rally seems like it is running out of gas. Quite frankly, despite the up-cycle (which did materialize), the percentage gain of the recent rally was disappointing. The price of the SPY is retesting the 10 EMA, uptrend line, and R1 Pivot Point. Tomorrow is options expiration day and it is possible that heightened volatility causes SPY to break down below the aforementioned support levels. On the other hand, the expected volatility could catapult the SPY to the R2 Pivot Point. That is yet to be seen.

We can see from the chart below that breadth is starting to weaken and the CCI indicator appears to be forming an early downtrend. If the market cannot find buyers, then a retest of the 20 SMA at $407 is possible.

It is concerning that the Bullish Percentage of Nasdaq 100 stocks is now declining. Large-cap tech stocks led the market higher. If they break down, it is possible for them to lead the market lower, especially since companies like Microsoft, Apple, Google, and Meta hold a large percentage of the S&P 500.

The Smart Money/Dumb Money Confidence model is worrysome. Smart Money (blue line) always buys low and sells high. Conversely, the Dumb Money (red line) always buys late, before a drop. This “Rinse and Repeat” tendency appears to be set up again, as smart money appears to have sold to dumb money once again. As dumb money stops buying, a downtrend often occurs.

The Equity Put/Call ratio supports the idea that a pullback is possible. When this indicator rises from a low level, the market usually drops. It is at a low level again. What comes next?

Overall the recent up-cycle was not spectacular as it was held back by poor fundamentals. Cycles point to the direction. Fundamentals dictate the degree. With earnings downgrades, a still hawkish Fed, a low equity risk premium, and the fear of an upcoming recession perhaps too many macro concerns are weighing this market down. It is wise to consider getting back into protection mode if the S&P 500 breaks down below the 20 SMA.

Disclaimer: This post is for educational purposes only and is not Financial Advice. For Financial Advice, please consult your Financial Advisor.