S&P 500 Trading Outlook (2-3 Days): BULLISH
The S&P 500 (INDEXSP:.INX) managed to exceed 2575 which helps to postpone Weekly counter-trend sell signals from confirming, while Technology still looks to move higher on the heels of Semiconductor (NASDAQ:SOXX) strength. As well, Junk Bonds (NYSEARCA:JNK) have managed to bounce off lows.
Near-term pullbacks should prove limited and allow for an attempted push back to new highs based on seasonality.
That said, any move that pulls back below 2575 would turn the trend back to bearish.
S&P 500 Futures Chart
TECHNICAL THOUGHTS
Yesterday’s snapback rally was a near-term positive technical development, and likely puts the near-term bearish case back on the Back-burner for now. While the results of the Senate vote and the overall outcome of the Tax bills remain very much in limbo and potentially still a very high hurdle to overcome, prices in US, European and Asian indices all jumped back over key areas of support which had given way to weakness recently, and after 5-6 straight days of selling, most indices managed to recoup a healthy part of this decline in Thursday’s trading. While more work needs to be done to have truly healthy outlook, vs just thinking this is a sharp bounce within a new bear trend, the price action was constructive and breadth looked to have confirmed the rally.
Looking at yesterday’s stats, breadth came in at 4/1 positive a huge positive in otherwise what has been a very lackluster environment for breadth on either the upside, or downside lately. Technology rose over 1% on the day, and High yield snapped back hard, which was seen also as an encouraging sign after recent weakness. While S&P remains under the uptrend line that was broken to the downside and momentum remains negatively sloped on daily charts, the act of regaining the last couple weeks lows which previously had been broken earlier in the week is thought of as a good sign for weekly charts. Movement back under 2475 would put the bearish case back on the front burner, but for now, it looks to have taken a necessary reprieve. Given that markets are heading into the Thanksgiving holiday season next week and historically have performed well on the Tuesday before and Thursday after the holiday, any downtrend might wait until early December before reasserting itself.
Evaluating the bounce… There were a few things that stood out that were important in suggesting that a bounce might be around the corner and important to mention. While our bearish stance didn’t turn bullish for reasons based on price deterioration, breadth, lack of leadership, defensiveness, etc all qualities which have been mentioned before, there were a couple things which stand out as important. First.. Equity put/call readings spiked up to the highest readings since early September after nearly two months of sideways trading. Second, McClellan’s Summation index triggered TD Sequential buy signals on Wednesdayof this week, suggesting that potentially breadth might begin to trend back higher. Thursday’s big breadth move fit the bill in suggesting that this might now be turning up, even if just briefly.
Overall, its important to reiterate that momentum remains now still quite negative on daily charts, and breadth came into Thursday showing just 43% of all stocks above their 10-day moving average.. not encouraging to say the least. Yet, Technology should be the KEY sector which should fail FIRST if this rally is going to turn down sharply. Even during the 5-6 day decline with signs of AAPL peaking, the broader Semiconductor index showed little to no weakness and now has jumped to new five-day highs, and looks likely to challenge its all-time highs from 2000 near 1350, or around 35-40 points higher. So we’ll lean with the Semis in the short run, in thinking they likely hold the market up at a time when just a minor pullback caused investors to begin buying puts rapidly.. showing that fear was on the rise very quickly on just a minor snapback. Overall, the combination of near-term breadth surge, with Semi strength and a still resilient market heading into the holidays with fear having reared its head quickly early this week all look to have been important in allowing for an above-average bounce.
If you are an institutional investor and have an interest in seeing timely intra-day market updates on my private twitter feed, please follow @NewtonAdvisors. Also, feel free to send me an email at info@newtonadvisor.com regarding how my Technical work can add alpha to your portfolio management process.
Twitter: @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.
