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S&P 500 Moves To Extremes Of Overbought Conditions

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#Stocks –

#Macro – $SPX, #BOJ

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Stocks were able to rally but stalled out at a resistance level of around 4,745, which dates back to November of 2021 and January of 2022. Meanwhile, the index traded above the upper Bollinger band for the fourth day in a row, and the RSI moved above 80.

The last time RSI moved over 80 and the upper Bollinger band was in September 2020. In 2018, the RSI topped out at 87, while the index traded above the Bollinger band with an RSI when it was at 78.  In both cases, the index traded down to the lower Bollinger band, which now would be around 4,475. Of course, as the index falls, the lower Bollinger band will also move lower, so it could be lower than 4,475, and the S&P 500 index would ultimately find a short-term low.

Of course, in 2018, that began as Volmageddon and led to a pretty volatile year.

In 2020, it led to a volatile period, too, but eventually, the flows of QE and cheap money could carry the S&P 500 higher.

Of course, today is not 2020, money is not cheap, and the Fed is not conducting QE. Today, it is much more similar to 2018, with the contraction of the Fed’s balance sheet and higher rates.

BOJ

Moving on, tonight is the highly anticipated Bank of Japan meeting. Guessing what the BOJ is going to do can be rather difficult, but what is clear is that the BOJ is going to move rates above 0% at some point. Any hints of policy change and a more hawkish policy will strengthen the yen versus the dollar. A stronger yen will not be good for Japanese equities, and what is not good for Japanese equities has tended not to be good for global equities.

Plenty of people will say I’m wrong, and the market is going higher. I do not care; markets do not trade in straight lines, and given these conditions, lack of fundamental support, and reserve balances, which should be heading lower, I would say good luck with that.

Anyway, that’s all…

-Mike

Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.