S&P 500 Short-Term Trading Outlook: Â Bearish
No change here. Looking to sell rallies up to 2827.
The current price pattern on the S&P 500 (NYSEARCA: SPY) is beginning to look complete as far as this bounce goes. Strong moves below 2805 and especially 2795 will point to a move down to 2736, and potentially 2684.
Bottom line, the failure of markets to gain ground on positive breadth and momentum should allow for an upcoming test and break of early week lows.
S&P 500 Chart
Two key areas are important to watch carefully: 2805 on the downside (breaks of this should lead to an immediate violation of 2798 and a pullback down to 2736). Meanwhile movement over 2827 would be more constructive. Hourly patterns have grown a bit more ominous with the failure of last Friday/Monday breakdown to rise meaningfully and regain what was lost. Any failure at this point in the days ahead should lead to a larger breakdown into mid-August. Watching 2805 in days ahead should be important.
Broad Market Commentary
Equities attempted to rally Wednesday, but failed, closing down under Tuesday’s close, and increasingly charts are starting to favor pullbacks into August 8-10before any rally can get underway.  Breadth has proven lackluster on rally attempts, while on Wendesday breadth finished nearly 2/1 down, as Energy and Industrials traded down sharply, while only Tech, Heatlhcare and REITS were positive.
Autos, Capital Goods and Energy were under pressure, while Casino stocks showed real technical damage in a way that should allow for further near-term pressure.
Financials meanwhile traded lower, despite yields pushing up and the breakout in Treasury yields on the 10 and 30year barely registered for most of the banks.
AAPL’s gains helped to propel Tech Hardware and this stock has defied the odds of late. Despite negative divergences, the technical trend remains ongoing for AAPL, and the move yesterday back to all-time highs will have to show more proof of giving way before trying to fade, notably, a return back under 196 at a minimum, but really back under 189 to have any type of concern. For now, signs of divergence have failed to lead this stock down, and this is important given the representation of this stock within various ETF’s and market indices.
For Thursday, it’s important to note that Treasury yields managed minor breakouts on Wednesday, getting above yield highs of the past couple months. This likely will keep yields moving higher in the short run, with 10yr targets near 3.08-3.12.
While stocks and bonds can move in tandem in the short run, this is an interesting development that could cause yields to move up a lot more sharply than what has been seen in recent weeks, and very well might serve to spook stocks as investors realize yields have crossed the 3% threshold and have begun to accelerate. While it seems unlikely that yields breakout above 3.12% given the futures positioning of Speculators. as this has played into the hands of those who are unanimously betting that yields continue to rise, in the short term, this looks to happen and could serve to buoy the Financials sector a bit better than Technology. Overall, Defensive positioning is still preferred in the next couple weeks with Staples and Utilities likely serving to lead, despite the rise in rates.
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.
