Sentiment and SPX Levels
January 31, 2022
The rally from oversold has the S&P 500 (SPX) set up for a period of base building under the 4500-4600 breakdown area. In the near-term, the SPX needs to close above ~4440 before the base building phase actually begins. The index is trading beyond 4440 at the moment, but the close matters more. We see the 4500-4600 area acting as fairly strong resistance with the first one or two attempts failing. The broad market currently lacks the momentum divergences that typically precede a top, and we look for the index to extend beyond resistance once investors come to terms with liftoff and once volatility subsides. Positioning for liftoff (coming to terms) should begin in ~mid-February ahead of the March 16 FOMC. The timing on volatility is trickier, but would expect markets to have an easier time advancing once the CBOE Volatility Index (VIX) trades below ~20 (now 25.7).