S&P 500 Trading Outlook (3-5 Days): No conviction directionally.
The S&P 500 held 2907 and failed to breakdown. That remains a key support level to watch on futures.
A move OVER 2936 on futures (the 9/26 high) would likely result in some upward followthrough, while 2907 remains important on the downside.
From a sector perspective, I’m avoiding Financials and Technology and favoring Energy.
Market Commentary – September 28:
There are a lot of moving parts. The Financials selloff seems to be intensifying. Case in point: A breakdown on the KBE ETF and Financials relative to the S&P 500 moved to new lows for the year.
The strongest sectors in yesterday’s trading session were Utilties and Telecom. Technology also powered higher by +0.50% which is helping to prop up the stock indices.
Small caps, Industrials, and Financials struggled while Defensive groups lead. Market breadth came in just barely positive. Combine this with a negative divergence, bullish sentiment, and bearish seasonality trends and you get a mounting concern.
In my opinion, longs should favor Energy and Healthcare, while remaining selective in Technology. Probably good to avoid Semiconductor stocks here. The so-called “FANG” names , (FB, AMZN, NFGX, GOOGL) were stronger than Technology as a whole, but are approaching resistance.
Meanwhile, outside of stocks the US Dollar moved sharply higher while Gold fell under support to multi-day lows. So the commodity rally for now still appears a bit premature. That said, WTI Crude Oil continued to inch higher, and Energy remains the way to play the commodity space. Treasury Yields have stabilized a bit after the last couple days of Treasury strength.
Overall, it’s been a tale of two markets to say the least. It’s thought that selectivity remains the preferred way to go. While a defensive posture might seem too cautious when trends are intact, the recent divergences and warning signs on breadth are very real, and given Financials starting to accelerate lower, it should be still time to watch for evidence of reversals of trend throughout the month of October.
The VIX, for one, seems to be giving a bit “TELL” given how strong this has held up lately, above 9/21 lows and well above lows seen in early August. If corrections prove mild and indices can get past October 24 with no meaningful drawdown, then it’s likely right to favor a move aggressively bullish stance into year-end. For now, there’s enough to warrant concern, and still correct to avoid too much equity exposure given how bullish sentiment has become in a bifurcated market.
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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.
