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Stocks are Technically Bullish ...

By:Christopher Vecchio - CFA

But, there is that "seasonality" issue

  • Three of the major indices—/ES, /RTY and /YM—have hit fresh yearly highs in recent days.
  • Rising Treasury yields remain problematic insofar as they may curtail risk-taking in stocks.
  • Seasonality for volatility may prove an obstacle for further significant gains in the near-term.

Year-to-date price percentage change chart for /ES, /NQ, /RTY and /YM

Year-to-date price percentage change chart for /ES, /NQ, /RTY and /YM

Market update: Nasdaq 100 up 43.49% year-to-date

Several U.S. equity markets have notched fresh yearly highs in recent days, and for the Dow theorists out there, transports are helping lead the march higher. Overall, technical structures across the four major indices remain bullish, lending credence to the idea that more upside may be ahead—a move to all-time highs could very well transpire before the books close on 2023. That said, as we begin to exit the seasonally bullish middle months and head toward autumn, when volatility has tended to jump higher—it’s clear some obstacles remain in the near-term.

/ES S&P 500 Price Technical Analysis: Daily Chart (August 2022 to August 2023)

All-time highs?

In late July it was observed that “with measures of volatility still depressed and the momentum structure holding firm, further gains cannot be ruled out in the near-term.” Since then, /ES has hit a freshy yearly high, confirming the technical outlook was valid. Nothing has changed materially. /ES has not closed below its daily 21-EMA (one-month moving average) since May 25. MACD (moving average convergence/divergence) is holding well above its signal line, and slow stochastics are still in overbought territory. Measures of volatility remain depressed (/ESU3: IV Index—13.9%; IVR—4.8) as well. If the technical structure erodes, it would be corrective and not an indication a top has formed. All-time highs can’t be ruled out later this year.

/NQ Nasdaq 100 Price Technical Analysis: Daily Chart (August 2022 to August 2023)

Last time we looked at /NQ, it was noted that “a return to the daily 21-EMA—which lines up neatly with the breakout point of the recent symmetrical triangle closer to 15400—can’t be ruled out in the near-term.” /NQ bottomed at 15483 before turning higher in recent days, which means the daily 21-EMA has not been broken on a closing basis since May 4. The bulls remain in control, even if the recent path has been more tedious and less exciting than price action in June and mid-July.

/RTY Russell 2000 Price Technical Analysis: Daily Chart (August 2022 to August 2023)

In the previous /RTY update, we said that “the broader technical structure retains its bias for an attempt to return to the yearly highs set in February…the trend is your friend, for now.” /RTY hit a fresh yearly high and a fresh 52-week high today before pulling back. The regional banking crisis is at bay, and /RTY has begun to perform well even when the banks do not. The technical structure remains bullish through and through; the top has likely not yet arrived.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multi-national firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx 

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