Testing resistance and oscillators

So we've had a bit of a pullback in the stock market in recent weeks.  We're going to look at three charts: the S&P 500, the S&P equal-weight, and the Russell small-cap.

First, the S&P 500:

 

As we can see, this index has had a nice run in recent months.  It broke through the 50-day moving average back in November and never fell below it, not even once, until mid-April.  This month has seen it correct a bit, but it hasn't actually declined that much.

There are two interesting indicators on that chart: the 50-day moving average, and the MACD oscillator at the bottom.  The 50-DMA is acting as resistance now, and indeed yesterday's trading action seems to have risen to that line and bounced off.  That's a bearish sign.  The other indicator is the MACD, and it clearly shows an oversold condition and an imminent signal line crossover.  That's a bullish sign.

Which indicator will prove to be the stronger force?  I don't know, but if the index fails to break through the 50-DMA this week, then it's probably heading further down.

We see a similar pattern in the S&P equally-weighted index.  It rose to the 50-DMA and then was stopped cold, signalling bear, while the MACD is signalling bull.

Also of note is that this version of the index hasn't risen as much as the $SPX version.  That's because $SPX is heavily weighted towards a handful of giant companies that have shot up due to the AI craze.  The equal-weight version isn't as AI-heavy, so its gain has been more modest.

And we see this difference even more clearly when we look just at small-caps.  Here's the chart for the Russell 2000 ETF:

This index hasn't gone anywhere this calendar year.  It's where it was back in December.  The MACD is signalling the same thing it's signalling for the other charts, but the 50-DMA hasn't been tested yet.  There's still some white space to cover before any bounce or breakthrough happens.

It's nearly May, and the old saying "sell in May and go away" must be considered as a possible influence on next month's action.  There's also the inverted yield curve, a real estate index that peaked in December, banking troubles as a result of higher interest rates, and so on and so forth, all bearish.  On the other hand, there are multiple powerful inflationary forces that might force prices higher, so the market might go up in spite of all the forces to the contrary.  We should know over the next few weeks whether this pullback is just a consolidation or if it's the beginning of a serious correction.

The Indefatigable Bull

This stock market continues to defy my attempts to figure it out.  Since early November, it's been practically a straight line going up at about 25 degrees above horizontal.  I've never seen a cleaner bull market trend line.  Frankly, it's too perfect, and I can't help but wonder how much of it is the result of human activity and how much is just bots and algorithms making automated trades.

Gold continues to hit new highs.  It's been doing this for the past few weeks.  The price of everything seems to be climbing at a disturbing and unsustainable rate, so naturally the powers that be say that inflation is under control.  (That was sarcasm in case you weren't sure.  Inflation is actually quite onerous, and lots of people are suffering because they can't afford anything.)

I own several South American stocks, so I'm now keeping on eye on the political squabbling that has erupted on that continent recently.  The embassy raid in Ecuador is just the latest in a series of dust-ups.  In all the talk of a potential World War III that's been going on lately, commentators usually focus on Russia, Ukraine, NATO, and the Middle East.  No one is talking about WWIII breaking out in South America, and that makes my inner contrarian think that's where it might start.

Stock market crashes often happen in September and October, but if I recall correctly, April and May are the next best months for it to happen.  If we can make it to June without a crash or correction, then maybe we can have a soft-landing consolidation or something during the summer.

In the meantime, though, the bull market seems unstoppable.  I'm not selling out.  I'm keeping my positions, collecting my dividends, and waiting for the wave to crest.

But crest it must, eventually, and woe to those who get caught in the undertow.