Weekly S&P 500 #ChartStorm - 28 June 2020

Those that follow my personal account on Twitter will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I'll pick a couple of themes to explore with the charts, but sometimes it's just a selection of charts that will add to your perspective and help inform your own view - whether its bearish, bullish, or something else!

The purpose of this note is to add some extra context and color. It's worth noting that the aim of the #ChartStorm isn't necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to. But inevitably if you keep an eye on the charts they tend to help tell the story, as you will see below.

So here's another S&P 500 #ChartStorm write-up!!

1. S&P500 closed below its 200-day moving average. Ok, only by about 12 points, but that still counts. It was an ugly close to the week as stocks finished on the lows. Increasing COVID-19 cases across southern and western states as well as in emerging markets has traders worried.

Keeping things in perspective though, the old range-high during April and May is still below the current price level. There appears to be good confluence of support near 2980-3000: the prior June lows, the aforementioned range highs, and the 200dma & 50dma. This could be the bears’ opportunity to rear ‘re-test’ narratives once again. Or will the bulls hold the line in the face of economic and political risks in the coming months?

Also keep an eye on the RSI (14) – it is at the weakest reading in nearly 3-months. Not exactly how the bulls want to end the first half of the year. Seasonally, the period around the 4th of July holiday in the US (to be observed on Friday) is bullish, but this year is anything but usual. During a stock market advance, the RSI tends to range between 40-90 per famed technician Constance Brown. A few more closes in the red could breach that range rule of thumb.

Bottom line: They say nothing good happens below the 200dma, and for just the second time in the last month, we settled below it. But we are back in the battle zone. The holiday-shortened week could be an interesting one...

S&P500 key levels and technicals

2. Under the surface, about a third of stocks are still above their respective 200dma's... diligently holding the line. A 7% pullback in the S&P 500 during the last three weeks has put many equities below their respective 200dma. The percent of SPX stocks above their 200dma is at the lowest level in a month. Rotation has taken place at times since the March 23 low – energy stocks have performed the best with XLE up 57%. More defensive sectors like Consumer Staples and Utilities have underperformed – advancing about 20-25%. And then there’s old reliability – Information Technology, +45% since late March. The bulls want to see broad participation in rallies, so a higher percentage of individual names in long-term uptrends would be a positive sign.

Looking back, following the December 2018 low, the S&P 500 quickly advanced during the first quarter of 2019. The percentage of stocks above their 200dma pulled back to just 50%. Keeping things in context, that may have been due to the market’s longer-term uptrend. Today’s market features more stocks that may be susceptible to broader downtrends in place. This makes sense since IT remains very strong (a rather top-heavy market) and energy stocks have bounced the most – but even with a nearly 60% recovery, most energy names are still in downtrends.

Bottom line: It’s always good to check under the surface, and many market leaders from the 2009-2020 advance are leading once again. The drawback is many stocks are back below their 200dma as the S&P 500 eases back from its rebound highs.

chart of 200-day moving average breadth

3. Analysts are throwing in the towel and upgrading their price targets en masse. You know what that means... Too far, too fast? This chart from @bullmarketsco illustrates how Wall Street Analysts have been busy upgrading price targets. Are they simply adjusting their outlook given the huge rally in the last two months or have they suddenly become optimistic about a second half and 2021 recovery? Hard to say, but we can look at history to see what this may mean for the stock market.

We’ve seen similar spikes before. Starting in the spring 2011, shortly before a nearly 20% drawdown in the S&P 500, analysts boosted price targets similar to what h