S&P 500 Post Longest Win Streak in 20 Years

I mentioned earlier this week that the average Joe investor bought the dip in March and April in record breaking amounts, close to $80 billion. These folks generally buy all dips because that has worked since 2009, however in 2022 when the dip kept dipping, they did start selling. We have not seen the latter dynamic yet. Then you have the trader types; these folks are a smaller group and currently they are super bearish pouring into 3x short funds. Since early April, this group is convinced the market is headed lower.

YTD SQQQ 0.00%↑ Fund Flows

YTD SPXU 0.00%↑ Fund Flows

I attended a webinar with DeMark today and they feel like ~$565 SPY is strong resistance, however if we break above that level we are likely headed to $575 SPY, which is just above the 200 DMA. I prefer the 100 DMA, which is at $578. Per Morgan Stanley on studies of bear markets, bear market rallies tend to fade around this point. If price moves more than 5% beyond the 100 DMA that usually means the bear market is finished.

Previously I shared what typical bear market rallies look like. Bear market rallies start and end with technicals at extremes (chart below). We certainly got to the bottom end of that RSI 14, and we are currently at 60. Also key is NAAIM, which tends to 2.5x since the bottom NAAIM (30), which means it’s headed into the 80s. Rallies tend last just under a month, basically one OPEX cycle. Another key spot to watch is the 100 DMA. This tends to act as a key resistance point more than the 200 DMA. If the rally exceeds the 100 DMA by more than 5%, then that’s usually a sign a new uptrend has started. For me to believe the bear market is over, the 50 DMA would need to cross back over the 200 DMA and the front month VIX contract needs to fall below the future months. For CTAs, their SPX buy trigger is 5,738.