Long-Term Significance of Last Week's SPX Rally

Keep an eye on the SPX's 4,290-4,315 area this week

Senior Vice President of Research
Jun 5, 2023 at 9:10 AM
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Also beware that a pivot or hesitation could occur at two levels immediately overhead: 1) the round 4,200 century mark and/or 2) the 4,225 level, which is exactly 10% above the 2022 close.”

-Monday Morning Outlook, May 22, 2023

“… if or when these levels are taken out, the 4,300-century mark, or August 2022 high, will become another level of chart fixation.”

          -Monday Morning Outlook, May 30, 2023

If the debt ceiling and the Friday morning May unemployment report were uncertainties that caused hesitation at the S&P 500 Index (SPX-4,282.37) 4,225 level from Tuesday through Thursday last week, it was the favorable resolution of these uncertainties that sparked Friday’s powerful rally though 4,225 to its highest level since August 2022.

In fact, the index gapped above the 4,225-hesitation point, and now the August closing high of 4,305 is in immediate view. Also of interest is that the 4,292 level is 20% above the October 2022 closing low and a point at which some would declare a new bull market. Plus, 4,315 is 10% below the January 2022 all-time closing high. Just 60 points, or 1.5%, above the 4,315 level is 4,375, which was the March 2022 breakout above a trendline connecting lower highs in January-February 2022. When the SPX moved back below 4,375 in April 2022, the bottom fell out into June.

As I have said before, when an asset claws its way back from a steep decline like we saw in the SPX from January through October 2022, there are numerous potential speed bumps to navigate along the way and, as such, it is fair to say that the 4,290-4,315 range is one to watch in the immediate days ahead. 

At the same time, resistance levels that have been surpassed can now be considered support. This includes the area between 4,160 and 4,225, the former of which was a level where multiple selloffs have occurred since May 2022, as discussed in prior commentaries. 


Last week’s SPX rally was potentially significant from a longer-term vantage point. In prior commentaries, I have noted the historical importance of the SPX’s 24-month, or two-year, moving average and 36-month, or three-year, moving average as support and resistance levels, or crossovers or crosses below marking continuation moves.

Per the chart below, the SPX crossed above its 24-month moving average after struggling to overtake this moving average since September 2022. That said, in the paragraph above, I put the word “potentially” in italics because we emphasize end-of-month closes above as being a crossover. Last month, for example, the SPX also moved above this long-term moving average, but closed below it. This moving average is currently sitting at 4,203.


Finally, it has been a common (and correct) theme among market participants that much of this year’s rally has been driven by several mega-cap technology names. I asked Rocky White, our Senior Quantitative Analyst, for a chart that shows a rolling percentage of SPX components that are higher relative to three months ago.

To no surprise, the percentage of SPX components that are higher during the last three months is below 50%. But with this theme being so prevalent, a couple of observations stand out:

  1. Friday’s rally through resistance was not driven by the mega-cap stocks driving this year’s rally. They were noticeable laggards, and:
  2. The percentage SPX components that are higher using a three-month lookback has increased to 40% from an early-May trough of 25%.

The contrarian takeaway is at a time the consensus is buying into the potential bearish implications of only a few stocks doing the heavy lifting, we could be on the verge of a broad-based rally that drives the SPX higher, even if mega-cap stocks lose their leadership.

There are always risks to the bull case. One immediate risk could be the mid-June Federal Open Market Committee meeting. Last week, per data from www.cmegroup that measures rate expectations based on fed funds futures traders, the probability of a rate hike at this meeting moved from 64% to only 30%. As such, if a rate hike materializes, this could catch bulls off guard. 

With this risk in mind, the Cboe Market Volatility Index (VIX-15.18) closed last week around a level not seen since June/July 2021, implying the cost to insure a stock portfolio is at a two-year low. (In fact, the VIX is at the bottom of a two-year range between 14.50 and 34.50).

If you're worried about the market unraveling due to the FOMC’s decision or guidance, or inflation data due out the week of the FOMC meeting, hedging a long portfolio with SPX or SDPR S&P 500 ETF Trust (SPY-427.92) put options might be an attractive action to take for some of you.


Todd Salamone is the Senior V.P. of Research at Schaeffer's Investment Research.

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