Is The 5,000 Level Of The S&P 500 Index A Stoppage?

“Magnificent Seven”, “Top Ten” or “Vaulted Securities”

On Feb. 7 [W], the S&P 500 Index (SPX) came oh, so close, peaking out at 4,999.89 in the final hour of the session, as I was continuously watching it.

Normally, I have not paid any special attention to any particular number on the prices of any indices or securities, but the 5,000 level has appeared on several articles on Seeking Alpha, and several finance websites.

Friday (Feb. 9), finally the S&P 500 clinched its third consecutive daily record close and settled above 5,000 for the first time ever, as investors remained bullish by the resilient economy and expected declining interest rates.

The consistent downtrend of inflation and the continuously positive market perspective enforce the current upswing momentum of SPY (the SPDR S&P 500) tremendously.

Throughout 3 sessions of Wed., Thu, and Fri, major components, such as “Magnificent 7”, or “Top Ten”, picked here, or “Vaulted Securities”, defined there, have been tightened altogether, so the market movement seems to be frozen, albeit some selected cash cows were every moment gyrating somewhat freely.

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Positive Feb., Strong Mar., and Bullish 2024?

“We vividly remember that in February last year, bears did really aggressively attack bulls: The 5-month old Uptrend was toppled in Dec. 2022, in Jan. 2023 it was barely reinstated, but in Feb. it was almost overturned again. This year, however, we already have 2 plus readings on Feb. 1 and Feb. 2, as I wished.

Now I want to see a positive spillover effect of the Santa Claus Rally, the January Effect, and the first two-days-plus columns into the February treacherous space. I hope February will be bullish, and then March will be strong as last year.

Furthermore, a bullish half year in Jun, and the bullish 2024, a joyful Goldilocks with a low economic growth, a low inflation, and a low interest rate.”

(From “January Was Positive, So Were Feb. 1 And Feb. 2, What To Expect In 2024?“, Feb. 6, 2024)

As shown in Table 1, the daily change of the S&P 500 index (or its ETF, SPY) was positive not only on Feb. 1 and Feb. 2, but also, an exceptional 4 plus columns in a row from Feb. 6 [T] to Feb. 9 [F]. It made a pavement on a highway toward a bullish Feb. Remember the earnest market failure in Feb. last year.

The 5,000 level is a monumental symbol in the bear aisle, but it is still very stable on the bull plateau, simply ratcheted up. My acute market observation supports the bull’s view.

As a result, the 5,000 level would not make a market top in a near future, as bears anticipate.

Pulse Check #1 by The Uptrend

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In Table 2, Bulls vs. Bears was 16 (= 10 (Jan) + 6 (Feb)) vs. 12 (= 11 (Jan) + 1 (Feb). Bears shortened the distance in Jan. a bit, but Bears increased it very high in Feb., by 6 vs. 1.

It’s a help to reduce the pulse a bit in the two-month-combined record, so it’s still solidly positive.

If you want the source of PPO (Paper and Pencil Only) approach, click this.

Pulse Check #2 by The TDI (Trifecta Distribution Index)

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In Table 3, 12 days out of 21 days (Jan. 2 through Jan. 31, 2024) were shared “P” and “m” each day, so only 8 “P” and 4 “m” readings because a trifecta requires all 3 components (SPY, DIA, and QQQ) have the same sign, either “P” [plus] or “m” [minus].

Table 3 exhibited a high level of bullishness in Jan. and Feb. (09): Bulls vs. Bears was 12 (= 8 (Jan) + 4 (Feb)) vs. 5 (= 4 (Jan) + 1 (Feb), 2 times more, as of Feb. 9, 2024. We want to stay on the plateau as long as possible. Therefore, any one-sided score is not good in either bull’s or bear’s favor.

It’s significantly positive, keeping a high level of 2 times over bearishness.

Pulse Check #3 by The SDI (Sector Diffusion Index)

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The TDI has nicely reached readers. The quite positive response encourages me to explore capturing the rotation trend of 11 Sectors of SPY, comparing with other equal-weighted ETFs, Russell 2000 ETF, and mid-cap ETFs.

The PPO approach recently has contributed to 1) the Momentum/Trend Analysis, and 2) The Trifecta Distribution Front in particular. As the third contribution, the PPO approach is to monitor the stock-market breadth and turning direction.

Uptrend, Trifecta Front, and Diffusion Index have a common thread of the PPO approach which distinguishes any movement with a plus (“P”) and a minus (“m”) without considering the size differences.

In any special situations with any external shock such as the oil embargo or COVID-pandemic or internal impacts of over-tightening monetary policy and undue fiscal expansion, the PPO approach has worked to fill the vacuum of traditional approaches.

Every day, 11 SPY sectors together make a Diffusion Index [“DI”] which oscillates between 0% to 100%. If all 11 sectors rose, the DI is 100%, and if all fell, the DI is 0%. The DI indicates market breadth, which means how tightly the components stick together.

In Jan., the SDI was 51%. In Feb., it was 45%, as of Feb. 9 [F]. By the same token, we had a bit lower but still optimal level of pulse.

The Market Perspective for 2024 and Beyond

The market and economy have performed providently since late 2023, and as of Feb. 9, 2024, as we traced with various indicators.

Bears are growling in the bear aisle, but Bulls are quiet with compliance in the bull camp, although both bears and bulls have been busy with the instant (in a few seconds or a few sessions) trading which is exciting but risky.

According to another of my articles, the SBM (Super Bull Market) started in March 2009, and the GE (Great Expansion) started in June 2009. The SBM has not been stopped by the COVID-19 related NBER “Recession” (or ensuing bear market). The GE also has continued to date, as asserted in my several posts.

The current bull plateau is expected to continue until 2026 (or 2027) as I predicted several times. As a result, we would expect a “Bear Market” to end the SBM in 2027, and about six months later, a “Recession” to end the GE.

As a consequence, most importantly, we finally get the right business cycle chronology back, by getting a “bear market” as a leading indicator comes first, and then a “recession” as a coincident indicator follows.

Conclusion

The pulse of the plateau was optimal in the Uptrend, the TDI (Trifecta Distribution Index), and the SDI (Sector Diffusion Index) as well. The 3 indicators maintained the same strength of the plateau at the right level, resulting in a longer life cycle.

We deeply welcome that the benchmark S&P 500 is above the 5,000 level, which would remain at the same level for a while, or a bit higher level in the future, perhaps until 2027.