Mosaic Chart Alerts

S&P 500: Conditions for a rally.

In this post, I’ll focus on setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trades.

These ideas are the end result of my process to identify stocks offering the right combination of growth fundamentals along with a proper chart setup.

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Stock Market Update

Geopolitical headlines and key economic reports covering jobs data are fueling more volatility this week. Following a one month delay, President Trump is pushing ahead with 25% tariffs on imports coming from Mexico and Canada. An additional 10% tariff was added on Chinese imports, brining the total figure to 20%. Lost in tariff headlines was the ADP report on private sector payrolls. It showed 77,000 jobs added during the month of February, which was well below estimates for 148,000. That sets up a highly anticipated payrolls report for February, which is due out on Friday.

The uncertainty and early week selloff in the stock market is starting to trigger capitulation signals. That includes one tied to the CBOE Volatility Index (VIX) which tracks implied volatility on the S&P 500. The VIX jumped to an intraday high of 26 on Tuesday and is the highest level seen so far this year. But that increase is inverting the futures curve tied to VIX contracts. The chart below shows the VIX futures term structure, which is normally upward sloping. When panic drives spot VIX levels above futures contracts expiring further out, the curve becomes inverted (or in backwardation). Historically that’s been a strong capitulation signal of at least a near-term bottom following a selloff.

At the same time, breadth and investor sentiment are providing a backdrop that can see a rally unfold as well. Several measures of investor sentiment remain in extreme fear territory. That includes the AAII survey of retail investors that shows the percent bearish at 57% this week. That’s a slight dip from last week, but still well above the historical average for bearish views. While excessive bearishness remains widespread, short-term breadth finally touched oversold levels. The percent of stocks trading above their 20-day moving average fell to 20% this week (chart below). A reading of 20% or below is an extremely oversold level and has only been hit seven times in the past two years. The MACD applied to the indicator shows the potential for a mean-reverting move higher as well.

Those are solid conditions to help see a rally at least over the near-term. That’s lining up with a more favorable seasonal period for S&P 500 trends as well. The key now is to find stocks showing the best improvement in their relative strength lines, and that are among the first to breakout to new highs. Keep reading below to see:

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