SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON THE DIRECTION OF THE S&P 500 INDEX:
Short-term (3-5 days): Bearish for this coming week unless the S&P 500 regains 2892.
It’s thought that the lack of volume and above-average breadth on gains versus declines this past week coupled with the short-term deterioration in technical structure, still has the chance to lead stock indices lower into month end/early June before a bottom.
While bearish sentiment is rising, we haven’t seen proper signs of any real capitulation –> by means of VIX backwardation (Spot VIX well above 2nd/ 3rd month VIX futures), capitulatory volume into Declining vs Advancing stocks (HIGH TRIN or ARMS index ratio >2), the equtiy put/call ratio at extremes (getting there, but not yet) or counter-trend signals and/or divergence in VIX vs SPX (SPX goes lower, but VIX fails to rise).
Above all, key sectors like Tech and Financials don’t look to be stabilizing just yet and these are the building blocks for SPX.
As long as Utilities and Staples are showing good strength, while XLK hits new lows, this minor selloff can extent a bit more. Gann -based targets for this coming week lie near 2734-6 at extremes up to 2762-4 on any decline down under 2800. This would make fear escalate, and should provide good risk/rewards to buy dips.
Intermediate-term (3-5 months): Bullish
Near-term deterioration, even after 5 straight down weeks in Dow Jones Industrial Average, has not been sufficient to turn intermediate-term trends negative.
The near-term weekly momentum remains positive for SPX and not overbought after S&P completed the best quarter of performance since 1998 and through April, the best four-month kickoff to a year in over 30 years. While near-term momentum has rolled over a bit and breadth has faltered since late February, we haven’t seen much damage, if at all, to the larger trend thus far.
The one “Elephant in the Room” with regards to a giant Technical Negative remains Monthly momentum which is negatively sloped and at far lower levels than last Sept/October when looking at RSI, and even on this market bounce, this did not push back to highs. For now, this won’t be a concern until more breadth divergence starts to happen on daily/weekly charts.
While gains at this point likely will prove less robust into Summer/Fall and offer some buying opportunities, we’ll need to see some evidence of more serious breadth deterioration and more bullishness to have concern on an intermediate-term basis. Advance/Decline for Equities did peak out with indices in early May, yet the resulting decline has not been all that severe.
Overall, it’s right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020. However, the time period from mid-September into November could set the tone for 2020. Stay tuned.
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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.
