S&P 500 NEARS TEST OF DECEMBER HIGH AFTER CLEARING 200-DAY LINE -- BREADTH INDICATORS REMAIN SUPPORTIVE -- SECTOR BREADTH IS ALSO POSITIVE

NEXT TEST IS DECEMBER HIGH... The technical  condition of the stock market continues to improve.  Chart 1 shows the S&P 500 clearing its 200-day moving average.  Although not shown here, it also cleared a falling trendline extending back a year.    Both are positive signs.   The next test will be the ability of the SPX to clear its December high.   In addition, its blue 50-day moving average line is very close to testing its red 200-day line and may be nearing a "golden cross" which occurs when the shorter line crosses above the longer.   That would be another positive sign.  Market breadth indicators also appear supportive.  Two-thirds (66%)  of SPX stocks are trading above their 200-day average; while the NYSE common stock only advance-decline line has risen to the highest level in five months.

Chart 1

BULLISH PERCENT INDEX TESTS RESISTANCE... Chart 2 shows the NYSE Bullish Percent Index right up against its August peak at 60%.  That index measures the percent of stocks on point & figure uptrends.   A decisive close above that previous peak would be a positive sign for stocks.   Another sign of positive breadth is the fact that most sector indexes have exeeded 200-day moving average lines.   Some have also experienced "golden crosses".

Chart 2

POSITIVE SECTOR BREADTH... Eight sector SPDRs are trading over their 200-day lines.   Chart 3 shows the Technology SPDR (XLK) clearing that major resistance line this week.   That puts the XLK in position to challenge its  December peak.   Because of its large size, the XLK carries a lot of weight in the S&P 500.   An upside breakout would be good for both.

GOLDEN CROSSES... Four market sectors have already experienced "golden crosses" with their 50-day lines exceeding 200-day lines.   They include financials, industrials, energy, and materials.   The circle in Chart 4 shows the shorter average crossing above the longer a month ago for financials.  The XLF has also traded above its December high.

Chart 3
Chart 4

WEEKLY SECTOR RANKING... Chart 5 ranks the eleven market sectors for the past week with nine in the green and two in the red.   It's encouraging to see economically-sensitive consumer discretionary stocks in the lead along with technology, communications services, and financials.  The weakest sectors are utilities, healthcare, and consumer staples which are defensive in nature.    All of which suggest that investor confidence appears to be improving.

FED REMAINS BIGGEST HURDLE... While market sentiment is showing signs of improvement, the biggest hurdle for stocks remains the Fed.   There appears to be a disconnect between improving market action and an aggressive Fed that appears determined to keep hiking rates until inflation is finally brought under control.   In addition, inverted yield curves continue to predict the likelihood of an economic recession which would be negative for stocks.   At such times, technicians need to rely more than ever on market charts to help determine likely market direction.   The next big test will come after next week's Fed meeting.  And how stocks react to what the Fed does and says about its future intentions.

Chart 5
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