S&P 500 Trading Outlook (3-5 Days): Bottoming process near-term
The trading environment is still mildly bearish given the rally within the downtrend, but I feel that the downside is limited to 2666 between Friday and next Tuesday.
I’m looking to cover shorts and assume trading longs Friday/Monday.
The S&P 500 managed to show impressive price gains Thursday, but still failed to get back over Wednesday’s highs, so the downtrend remains intact for now.
Breadth turned in a 3/2 gain, somewhat disappointing for a 1% rally, but five sectors finished higher than 1%.
Many continue to scratch their heads as to how stocks can fall during a seasonally bullish time when the economy is in good shape and earnings are fine. It’s worth mentioning that seasonality has largely been a disappointment for the last few quarters, showing the exact opposite of what is expected. Thus to ignore the bearish seasonality periods and just emphasize the bullish doesn’t make much sense here.
That said, the positive momentum divergence I mentioned yesterday, is a factor that should limit losses for now.
I’m expecting a technical bounce over the next couple weeks that may begin either Friday or early next week that should carry prices higher into early December before possibly stalling out yet again.
S&P 500 Futures Daily Chart
The S&P 500’s daily pattern remains bearish, as we’ve seen five straight days which failed to get over the prior days’s highs. Near-term momentum has improved over the last couple days as the market attempts to stabilize within this downtrend. While the intermediate-term picture is getting worse, momentum wise, the daily picture seems to suggest a trading low should be right around the corner (Momentum remains higher than a few weeks ago and has steadily improved since October 11).
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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.
