S&P 500 Trading Outlook (2-3 Days): BULLISH, but…
A bullish stance remains preferred into the end of the week as there’s no evidence of any exhaustion on the S&P 500 (INDEXSP:.INX) just yet.
However, time studies show this period between now and next week is very important to a possible reversal, so it should pay to not be complacent. Even a move to new two-day lows would be thought to be important, so 2520 is the first warning, while breaks need to clear 2485 to have concern.
The market advance remains one of the more lackadaisical rallies seen all year, with breadth barely budging, day after day, so stay tuned.
S&P 500 Futures Chart
Technical Thoughts
As mentioned above, the rally is turning in stats which are just fractionally positive and similar to Tuesday’s trading (which came in around 3/2 bullish). This is a disconnect to some extent with many who now believe markets should simply extend up into year end with little to no correction.
While the price moves per se are indeed impressive with setting record after record, we see that sub-groups like S&P Tech Hardware is down over 2.7% in the last month. The sector participation in the last week has registered more normal” readings for a “risk-on” type move, with Financials and Tech outperforming, but as mentioned, much of this has occurred within the Semi space while Hardware and Software both have fallen on tough times, relatively. Markets have finally started to show more stocks hitting new 52-week highs, which expanded out to over 229, the highest since mid-May, while the percentage of stocks above their 50-day moving average has in fact moved up to 69% , still below the 75% witnessed in July, as well as falling well shy of the 80% reading seen in March.. but progress, nonetheless.
The key development over the last few days revolves around some of the laggard stocks playing catchup to the leaders, as Airlines, Autos, Media, have all been rallying of late, following a stellar 8.8% move higher in Energy over the last month. The laggard part of technology also has bounced of late, with AKAM, STX, JNPR showing good strength while the FANG stocks have lost ground. Â Financials have made further headway, and this group along with Technology still remain key to this rally continuing.
Bottom line, studies that examine five straight days of market gains in the last 20 years have unanimously weighed in positive on the likelihood of further near-term gains, which presents a quandary with regards to some of the cycle projections. While Demark signals have largely failed to produce a top in late September, cycles projected from mid-August lows, early July, along with last November election lows all pinpoint the next week as being important for a change in trend. We’re seeing the end of this week into next show confluence from both 45 days, 60, 90, 135, 180 from prior highs and lows, along with being a key 10, 20 and 30 year anniversary to prominent highs in the past. While the confluence of overbought conditions, a huge bump in bullish sentiment, lackluster Seasonality and waning Technology, along with key anniversary cycle dates into early October doesn’t have to produce a top per se, the risk/reward in the next week continues to look sub-par. One should make note of any attempt to move to a new multi-day lows in the week ahead, for whatever the reason, and consider this important and negative as its something that could follow-through.
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Twitter: Â @MarkNewtonCMT
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.
