S&P 500 Technical Update And Trading Outlook – March 3

S&P 500 Futures:  (2-3 Days)

Bearish down to 2368 – Prices managed to give back around 60% of the prior day’s advance, though look to have a bit more on the downside into Friday/Monday before any kind of near-term low is place.  Pullbacks which get down under 2367 would be thought to be more serious. For now, incremental weakness Friday/Monday on the S&P 500 (INDEXSP:.INX) should be a buying opportunity given the positive nature of Wednesday’s advance.

Technical Thoughts: Pullback is Likely Buyable Until Proven Otherwise

Thursday finally brought about a much needed pullback to the prior days gains. And while smaller in nature, it still managed to give back around 60% of the prior day’s rise. Market breadth was heavier on the pullback than it was on the prior day’s rally, which is interesting, at nearly 3/1 negative. The Financials Sector (NYSEARCA:XLF) lost nearly 1.5%, despite the rise in yields and steepening in the yield curve.  Materials and Industrials also fell around 1% on the session, with only Utilities and Telecomm positive.

Overall, the trend remains quite bullish from early February and early this week, so this pullback looks needed, and one to consider covering shorts as prices get to the upper part of the Consolidation that was exceeded on Wednesday. If in fact, prices get below this level, than a potential larger selloff could in fact ensue. For now, the fact that the US Dollar Index (CURRENCY:USD) is turning up, yields are headed higher, and Tech and Financials have been working well, it’s tough to see much more than just a 2-3 day pullback following this week’s breakout.

Key technical developments center on the breakout in the S&P 500 and NASDAQ on Wednesday. Supporting this are the breakouts in Biotech stocks, the stabilization in Energy, the downturn in Gold, the movement higher in the US Dollar index, and the near breakout in 5, 10 and 30-year Treasury yields. Most of these have continued their initial moves outside of the short-term weakness in equities.

Given the “reset” in Demark indicators, it likely means that it’s still a bit early to think equities have peaked… and yields may be readying for an upside breakout of their own.

S&P 500 Futures Chart

The S&P 500 showed at least a few signs of obeying gravity Thursday, but given the positive nature of the breakout Wednesday, this will need to be completely retraced Friday into next week for one to doubt the validity of this move.  For now, mild pullbacks that hold 2365-75 area are likely buyable for additional upside into the FOMC meeting.  Market breadth did come in at a much more “tepid” pace Wednesday than Thursday’s decline, but the Financials rally on yields moving higher would likely face another steep Upleg if in fact Treasury yields climb over 2.52%.   For now, it seems right to use this pullback to cover shorts at levels just below current prices on Friday and into next week.

Note that you can catch more trading ideas and market insights over at Newton Advisor.  Thanks for reading.

Twitter:  @MarkNewtonCMT

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.