Mosaic Chart Alerts

S&P 500: Dead cat bounce or room to run?

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

Investors mostly cheered a softer than expected inflation report. The Consumer Price Index (CPI) for the month of February increased by 2.8% year-over-year. That was less than the 2.9% expected by economists and down from 3.0% in January. The core measure that strips out food and energy prices gained 3.1% compared to estimates for a 3.2% increase. Stocks staged a rally mostly led by growth sectors. But the outlook for monetary policy was little changed following the report. That’s due to the uncertainty around tariffs on the inflation outlook. At the same time, “supercore” inflation that looks at core services excluding housing remains problematic. The supercore reading was dragged lower by falling airfares last month due to weakening travel demand. If you exclude transportation, supercore CPI has seen a large monthly jump during the last two months (chart below).

Chart from Parker Ross on X

While the S&P 500 held gains following the lower-than-expected inflation figures, a relief rally was to be expected. On an intraday basis, the S&P 500 hit correction territory this week with a 10% decline from the February peak. That left some measures of price momentum at their most oversold level since this cyclical bull market started in late 2022. Selling has been worse among this bull’s biggest winners, with an ETF tracking the “Magnificent 7” down nearly 22% from the mid-December peak. But amidst the pullback, there are more signs emerging that the selloff is overdone.

In addition to extremely oversold levels like the MACD on the S&P 500, near-term breadth across the market is hitting washout levels. The percent of stocks trading above their 20-day moving average dipped below 20%. There are other signs of extreme investor bearishness as well. Call volume on the CBOE Volatility Index (VIX) hit the sixth highest level ever this week. The spread between bulls and bears in the Investors Intelligence advisor survey showed bears outnumbering bulls for the first time since 2022’s bear market (chart below). A combination of oversold levels and more signs of bearish sentiment are conditions to help support a relief rally.

Chart from RenMac on X

Our trading watchlist features many stocks trading just below their prior highs, and where their relative strength line is already making new highs as they outperform the broader market. More stocks in the precious metals space are setting up as well, with many mining stocks looking primed to breakout. Keep reading below to see:

• Open ETF positions.

• Open stock positions.

• Chart analysis for new trade ideas.