S&P 500: Has the Seasonal Rally Kicked Into Gear?

 | Nov 23, 2022 09:21

Top-level view - Long and strong for 4200, cutting on a 3- & 8-day EMA crossover

On the day, we see the S&P 500 cash closing +1.4% and above 4000, taking the bear market rally to 14.6% from the Oct. 13 low.

All sectors rallied, with energy the best performer gaining 3.2% - breadth was broad at a stock level, and we see 89% of stocks in the index closing higher – hard to paint a more bullish picture.

Not sure we can fault the intra-day tape either. It was an out-and-out trend day, and as soon as the price smashed through VWAP in European trade, retested, and found buyers, it was all uphill with a solid melt-up into the close.

Of course, we have a World Cup underway, and a bunch of traders took time out here, where we see S&P 500 futures volume at an anemic 1.1m contracts, while cash volumes were 26% below the 30-day average.

As anyone who was long and held through US trade would attest, you can still make money in a low-volume environment.

h2 Has the rally got legs?/h2

One prominent strategist who has called the S&P 500 well throughout 2022 is Mike Wilson (of Morgan Stanley, who has pulled out his playbook, calling for the S&P 500 to rally to 4100-4300 by year-end.

However, once we get past the turn his call is that the index retreats to a range of 3300 to 3000 by the end of Q1 before staging a solid rally into the 2023 end. It's not often we see such a definition from a sell-side strategist, and it's gutsy.

His logic is sound, but what the market does is another thing.

h2 The technicals favor further upside/h2

If we look at the setup of the S&P 500 on the daily chart, a long bias is certainly the favored position. Naturally, if the flow and structure change and become more bearish, we do something about it quickly. As traders, we react to signals, or it can cost us.

Importantly, we’ve seen price break out of the bull flag, which, if we take the move from the 3 Nov low, targets 4280.