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Don’t look now, but short-term and intermediate-term market indicators aren’t exactly in agreement these days. It seems the short-term indicators, including overnight futures, are looking to extend the recent bull run of the S&P 500. It doesn’t take a very deep dive into the data to see a few signs this recent rally could get mauled by bears though.

For the past year or so, the VIX (volatility index) has been a fairly useful tool to suggest when markets were getting a little ahead of themselves and a pull-back was due.  It hasn’t been perfect, but when the VIX fell below 20 or so, markets tended to peak and decline for a stretch.

Well, the VIX is now at 18.35. This is the lowest we’ve seen since April 2022. And markets have been in a mini-rally since late December.

The question is, how much more of a run do the bulls have?

This is a tricky question since the overall trend has been negative for the past year. At some point, markets do bottom and start to recover. But the economy on the whole still seems to be getting worse.  The question is, how much worse will it get?

The stock market is typically a leading indicator. Assuming things were to turn around soon, one would expect stocks to sniff this out. In such a case, the markets would begin to go higher BEFORE the economic data turned. This would be the classic ‘leading indicator’ the market has a reputation for.

Alas, these things are generally easier to recognize in the rear view mirror. And, with the current state of global affairs (which includes wars, inflation, varying degrees of central bank intervention, and general economic instability), it’s difficult to suggest that things are starting to stabilize.

A drive-by analysis of this market suggests a few things are pulling at it. The Fed is arguably the biggest influence. But there are also a few key price points based on the 2020-pre-Covid markets and the 2021 Ukraine Invasion values.  Both are kind of ‘what it used to be like’ indicators.  As in, have we gotten better or worse than before those points?  Is it ‘back to normal’ or are we still dealing with this strange post-pandemic semi-apocalyptic world?

This isn’t just a market question. It’s an economic one. And, depending on the variables, you’re monitoring, they are both better or worse.

Realistically (meaning try to put the social unrest aspects aside), the data is a mixed bag. But the data the Fed is watching – mainly the inflationary stuff – is starting to decline. The workforce itself remains the sticky problem.

As crazy as it sounds, unemployment is (academically) too low to be considered economically healthy. This is mostly because really low unemployment drives wage inflation. And wage inflation drives… inflation.

The problem with the unemployment figures is it shows a fully employed workforce, but it doesn’t really account for a lot of the people that are otherwise able to work but left the workforce. (And, so we’re clear, this isn’t just an economic conundrum. It crosses over into a social issue. So you can see how this can quickly become convoluted in a discussion.) We’re not entirely sure why so many have abandoned work – or even how they are affording to do so per se – but we know it creates unique economic pressures. And it makes market analysis slightly more tricky on an intermediate-to-longer-term scale.

Stripping away the complexity for a moment, the issue this week is simply that markets are showing signs of topping out, but the short-term trend has been positive. So… do you get trend persistence, or trend reversal on resistance?  Hard to say.

Taking an educated guess, it’s probably a mixed bag where the indexes pull back a little bit, but individual holdings may go either way.  In short, this is the ‘stock picker’s market’ many are talking about.

So buckle up. For a long time stock pickers have been trumpeting that indexes have their flaws.  Will 2023 be the year they’re correct?  We’ll see.

For now, look for 4088 to be the top of the up-side range for the SPX this week. Support is around 3913.

May the odds be ever in your favor.

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