S&P 500 Update: Near-Term Trading Targets In View

S&P 500 Short-Term Trading Outlook (2-3 Days):  Bullish but stretched

The S&P 500 Index (INDEXSP:.INX) is moving into 2435…  Minor upside is likely into early next week before a pullback to alleviate recent overbought conditions. I’m looking to sell into this move and take at least partial profits near S&P 500 trading targets at 2435-7, all the way up to 2444-5. We should then see at least a small pullback.

Technical Thoughts

Thursday’s minor bullish breakout was the move we were looking for. Yesterday helped to break out of the multiple day consolidation that followed the run-up from 5/25. Multiple sectors moved back to new highs on above-average positive breadth. This is a positive and helps to embolden the bullish call in the short run.

The prior Industrials Sector (NYSEARCA:XLI) breakout was followed by moves back to new highs in Consumer Discretionary (NYSEARCA:XLY), along with a three-month triangle breakout in Health Care (NYSEARCA:XLV). Financials have also recovered.

In the days ahead, upside might prove subdued given the extent of the rally from this consolidation, but the trend remains bullish and should result in a bit more rally into early next week.

Overall, sector rotation was the theme of the day yesterday as early weakness out of Technology failed to take the market lower. Tech in general, has gotten stretched, and is starting to show signals that it might require some consolidation, particularly in the so-called “FANG” stocks. However, for now, this looks to require another 1-2 days of gains, so will be discussed with more seriousness next week when the time arrives.

Elsewhere… Transports continue to move higher after breaking out above a three-month downtrend line. The Russell 2000 also outperformed and Treasury yields and US Dollar Index both look well positioned to begin a turn higher soon.

The Bottom Line:  Despite being overbought, the rally seems to be getting a bit broader with multiple sectors are  attempting to breakout back to new highs.  Keep an eye on Financials and Technology.

S&P 500 Chart Spotlight

The S&P 500’s breakout above 2417 is pointing to S&P 500 trading targets 2435 up to 2445 before backing off.  Look for a pullback or consolidation next week.

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Author has positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.