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Chart of the Day: Supply Overhead

January 30, 2023

As well as stocks all over the world have been doing over the past few months, the overhead supply in the major US Large-cap Indexes remains in place.

In other words, these large-cap, growth-heavy, market gauges still have work to do.

A couple of months ago we reiterated our more neutral positions in the Dow Jones Industrial Average and S&P500, wanting to focus more of our attention on individual stocks and sectors.

That tactical approach has worked out well.

But fast forward to today, and they've yet to make any progress.

Take a look at the Dow Jones Industrial Average below that 34,500 level that we've been pointing to for a long time now.

That's the big level where the NYSE new highs list peaked in May of 2021:

There's a ton of market memory here.

And the more times prices get rejected here, the more important the level becomes.

As you can see, it's more important than ever.

So just think about how bullish the implications will be if/when the Dow is ultimately able to break out.

We have a similar situation in the S&P500, as we pointed out in early December.

It's that 4150 area that's been trouble. It was support last year that turned into resistance.

This is demand working on absorbing this overhead supply. It's a process and you're seeing it:

Here's a different look at the S&P500 and one of the biggest reasons why people who don't put in the work think stocks are in a downtrend.

Yes, the S&P500 is in a downtrend, or at least NOT in an uptrend. But that doesn't mean most stocks haven't been rising. The fact is they have.

"Stocks" are in an uptrend.

The "S&P500" specifically still has to prove itself out.

There's a difference.

Look at the index stuck below its anchored VWAP from its all-time highs a year ago:

Are we in an environment where we want to be buyers of any weakness in stocks?

Yes.

Are we in an environment where investors are being rewarded for owning stocks, vs being short them?

Yes.

Do we want to spend more time looking for stocks to buy vs spending more time looking for stocks to sell?

Yes.

Is the weight-of-the-evidence pointing to a breaking coming in both the Dow Industrials and the S&P500?

Yes.

Are either of these indexes currently in uptrends?

No.

Do they both have work to do to prove that they are in a new uptrending regime?

Yes.

That's how I see it.

What about you?

What are you seeing?

Chime in

Let us know what you're thinking. We love to hear from you!


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