S&P 500 Trading Outlook (2-3 Days): Mildly bullish up to 2630-40.
I’m expecting a reversal between Wednesday and Friday.
Early strength on Wednesday may offer an opportunity to sell/flatten out and adopt hedges.
The Bottom line: Upside should now prove limited for global indices, with the S&P 500 likely to face strong overhead price resistance between 2630-40 this week.
Reversals of trend look likely technically, and one should consider using strength to flatten out and/or adopt hedges for an above-average chance of a drawdown next week.
While markets had gotten near the vicinity of this resistance from a price standpoint, time had not yet lined up, but this seems increasingly likely given the presence of Demark -based exhaustion on daily and intra-day charts of various duration, while Global indices are approaching the one-year anniversary of last year’s major peak.
S&P 500 Futures Chart
The NASDAQ (tech) and XLF (Financials) are near key levels and this helps to add conviction to this idea of a stallout. Moreover, Crude oil, Treasury yields and SPX have all moved in unison in recent weeks and now all three have been showing some evidence of stalling, with Treasuries starting to show the greatest amount of strength. My Weekly Technical Perspective highlighted 10 stocks to consider as Technical shorts and the last couple days likely have allowed for an even better risk/reward entry.
Additional reasons for concern include the degree to which breadth and momentum have been to slow after an initial sharply positive Surge off the lows in late December. This last few days showed hardly any net change and breadth was flat. While this could be expected after such a big move like we’d seen, in excess of 10%, yesterday’s minor range breakout occurring on such light breadth while momentum was lower was a potential near-term “nail in the coffin” for US indices.
It’s thought that Treasury strength occurs which in turn will lead indices back lower for a potential retest and minor break of lows (which then should be bought, technically) The reason to think indices retest has more to do with Structural concerns and wave pattern from November/December which would present an ideal buying opportunity on any break to new lows.
While the improvement in Technology and positive breadth from December are reasons to expect pullbacks are buyable, at current levels markets look like poor risk/rewards for longs in the short run.
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.
