Summary
The stock market remains in a bullish long-term trend, with the S&P 500 and Nasdaq 100 advancing strongly over the past year. Each index has seen brief pullbacks, ultimately resolved higher, affirming the market’s strength. Currently, both indexes are sitting at pivotal support levels. However, a change in momentum suggests caution, as we monitor whether these support levels will hold. The potential for continued advances exists, but a break below support could imply near-term weakness.
S&P 500 Analysis
The S&P 500 has shown resilience, recently advancing past a previous high, which then acted as a support level. In last month’s newsletter, we discussed how the index had just moved above this resistance level, and the key question was whether this new support would hold. Since then, the index continued its uptrend, but over the last couple of weeks, it has retraced to rest right on this support level, which aligns with its 50-day simple moving average. Over this year, the index has held these levels, supporting the overall uptrend.
However, a new development is visible in the MACD momentum indicator. This month, we see a “negative divergence”—a pattern where the index has reached new highs while the MACD has peaked lower and is now turning down. This could be an early signal of waning strength and, combined with current support testing, suggests we may be approaching a pivotal point. If the S&P 500 successfully holds above this support and advances, it will reinforce the bullish structure. On the other hand, a decisive move below support would signal further near-term market declines.
Nasdaq 100 Analysis
The Nasdaq 100 has been trailing behind the S&P 500 in terms of overall strength, but its chart pattern still reflects a constructive uptrend. Last month, the index was positioned below its resistance level, and over the past month, it has advanced up to that level but hasn’t yet broken through. This resistance coincides with a key previous high, and the index now sits slightly above its 50-day moving average, providing additional support. If the index moves up from here, advancing past resistance, it will align with the broader market’s bullish trend.
However, unlike the S&P 500, the Nasdaq 100’s recent pattern has been more tentative. Similar pullbacks ended with strong advances above resistance. This time, we’re seeing more hesitation at these levels. The MACD momentum indicator in the bottom panel also shows a negative divergence, turning down even as the index pushed higher. This divergence reflects a drop in upward momentum, highlighting potential weakness if the Nasdaq 100 cannot break past its current resistance level.
In summary, the S&P 500 and Nasdaq 100 are holding key support areas and remain in an uptrend. However, the indexes are at pivotal points: if support holds and they advance, the bullish trend would remain intact. Conversely, a break below support—especially with the recent momentum divergence—would signal a need for caution in the near term.
Current Portfolio Allocation
In light of recent market weakness, we’ve taken a more cautious approach by tightening our stops and reducing our equity allocation. Additionally, to manage risk effectively, we chose to sell certain holdings in advance of their upcoming earnings announcements. As a result, our current allocation reflects a more defensive stance, with reduced exposure to equities. However, I intend to add back equity positions when the market regains strength and momentum shifts back to the upside.
CAN WE HELP YOU?
HERE’S AN EASY WAY TO FIND OUT
We want clients who are a good mutual fit. To find out, we offer a no-pressure complimentary consultation. If we can help you and you want to work with us, that’s great. But if you don’t, we will give you free asset allocation direction on your retirement accounts, at no charge and with no strings attached.
If you are interested, send us an email to set up your complimentary zoom meeting.