In my experience, the biggest disagreements in markets, between bulls and bears, are usually a function of timeframe. A “trader” may have a bearish view of the market over the next week or two, and if that trader is speaking with an “investor” who has a much longer timeframe, they will likely disagree. They can both aggressively argue their points, and the kicker is they can both be right.
Is the short-term structure of the market tilting to the bearish side? Absolutely.
Is the long-term trend in the market still bullish? Absolutely.
Both can be true. Both are true, in my opinion.
S&P 500
The main chart depicts the intermediate/long-term trend of the S&P 500, the one that drives much of our work at Potomac. The index has logged two weekly declines in a row but remains in a bullish trend above the rising 60-week moving average.
The smaller chart is the daily version of the S&P 500. After making a new high on February 19, the index saw six consecutive days where the close was lower than the open before reversing that ominous trend on Friday.
Source: Optuma
NYSE Advance/Decline Line
Breadth remains a concern, not a sell signal, but a concern. The NYSE Advance/Decline Line remains in a divergence, having failed to confirm the S&P 500’s February 19 high. At the same time, the one-year stochastic remains below 80%.
A break to a new high for this indicator would alleviate much of the short-term bear thesis.
Source: Optuma
Monthly Seasonality
Perhaps the turn of the calendar is just what the bull case needs. February lived up to its reputation as a bearish month for the S&P 500 (based on data back to 1950). However, March and April have tended to be strong months.
Monthly seasonals, in isolation, are not a reason to act. However, the possible tailwind they can provide is worth noting here on the first trading day of March.
Source: Optuma
The 10-Year Note
Finally, the 10-Year Treasury Note appears to be working through a bottoming process. Why do we care? Recall that we have been extremely vocal since 2022 about the shift in stock/bond correlation from being negative for 22 years to being positive due to a shift in the inflation regime.
With the Consumer Price Index hovering near 3%, we consider the regime to be inflationary and therefore, the odds favor a continued positive correlation. A move higher in Treasuries could be bullish for equity prices.
Source: Optuma
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