April 26, 2023
Bearish momentum divergence signals triggered at the end of last week while the SPX was overbought. The positive YTD performance in the SPX has come from very few stocks with investors crowding into mega-cap names. Narrow market breadth is a bearish technical signal and Q1 performance was led by the narrowest leadership ever in an up market. The weight of the largest two stocks in the SPX is at an all time record high. AAPL and MSFT are no longer stocks in an index, they’re a destination. Yesterday, the S&P 500 closed below our technical support level at ~4110 with the next real cluster of support in the 4005-4035 range. A break below that level would likely result in accelerated downside momentum. We wouldn’t be surprised to see the index hold above 4005, which would encourage further crowding in defensive sectors and mega cap names. An ultimate bottom in the index will likely include capitulation-based selling in these stocks.