Market Update: Stocks Still Vulnerable To Near-Term Selling

Stocks are trading higher thus far this week but many indices are still below near-term trading resistance.

The S&P 500 Index (INDEXSP:.INX) will remain bearish until it can hurdle the 2350 area on the cash index. See analysis and short-term outlook for S&P 500 futures below.

S&P 500 Futures: (2-3 Days)  Bearish

Prices failed right at make-or-break resistance, and still lie in a minor downtrend from last week’s 4/5 highs. The index is also in a mild decline from the early March highs. Given the rapid decline in yields, along with IBM’s 4% decline (pre-market today), it’s thought that a short stance still makes sense until 2347 can be recouped. Downside targets lie initially near 2317-22 while movement back over 2356 should lead back to new highs.

While the trend remains marginally negative, attempts at selling thus far have proven futile. Keep an eye on the Bond rally as it looks to be accelerating – this could weigh on Financials further.  Overall, under 2347 argues for a short/defensive stance, while over 2347 would be used to cover and look for long opportunities.

TECHNICAL THOUGHTS
Prices reversed on cue where they needed to at 2347 on the upside, yet failed to do too much damage Tuesday before recouping some of Tuesday’s loss. Market breadth finished only fractionally down yesterday, with Staples, Telecom, Utilities, Real Estate and Discretionary all turning in a positive performance.

The ongoing bond rally which has begun to accelerate globally following the break of yield support in both the 10-Year Treasury Yield () and German Bund yields still looks to be a pressing concern for Financial bulls. And while Bank Of America’s rally was indeed impressive, GS, RF, PNC, FITB, USB all dropped 1.5% or greater.  Bonds look to be in the final stage of this move, and should be well positioned to reverse back lower next week.  For now, most exhaustion signals remain at least 3-5 days away, so oversold conditions on yields alone won’t trigger any kind of reversal.  Thus, Financial earnings should still come in over the next few days, and with plummeting yields, making big bets on Financials, or on the market for that matter still looks unwise.

Two key sectors to mention though which both made technically significant movement Tuesday: Consumer Staples to the upside while Healthcare broke down to new multi-day lows.  Consumer Staples (NYSEARCA:XLP) managed to rally to the highest weekly closing levels since July 2016 and within 1 point of new all-time highs.   The pattern since last Summer resembles an attractive Cup and Handle formation which bodes well for this group to show further relative strength in the near-term as it makes further progress.  The Health Care (NYSEARCA:XLV), meanwhile, has slumped back to new multi-day lows given the pullbacks in key stocks like CAH, MCK, ABC on Tuesday. This sector still looks technically vulnerable after a sharp rally from January-March and then one month of sideways prices.

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Twitter:  @MarkNewtonCMT

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