S&P 500 Trading Outlook (2-3 Days):  BEARISH
Yesterday’s pullback broke trend line support from late December on equally as bearish breadth as what occurred on Monday.
Weakness likely down to 2773 at a minimum, which would be a 50 percent pullback of the move from 12/29 lows. A bounce to fill the gap would likely face strong resistance near 2850 and be sellable. No signs of a correction until deeper supports are taken out.
Trading Ideas & Technical Thoughts
Stay Defensive:  While Utilities, REITS, and Telecom stocks fell in Monday’s trading with yields higher, Treasuries look to be right around the corner from a snapback rally as the equity decline starts to wither.  Worth considering long positions on pullbacks in XLU, VNQ and Telecom, and I expect these sectors to turn higher after being the three worst sectors for the month of January.
Still bullish Gold stocks:  Minor bounces in the Dollar should prove short-lived and Yields could pullback after recent gains. Therefore, metals stocks should still perform well. Gold is testing very important overhead resistance which doesn’t look to hold. Gold and Gold mining stocks look to outperform, so I give them an overweight rating.
Financials, Discretionary, Transportation and Semiconductor stocks have begun to show increasing amounts of deterioration, and should probably be avoided as longs in the short run. They are beginning to show meaningful signs of technical weakness for the first time in over a month.
The equity markets broke decisively on Tuesday as traders received a dose of back-to-back days of bearish breadth. Volume picked up on Tuesday on the move to multi-day lows, and 10 of 11 sectors declined in trading; Financials, Consumer Discretionary, Materials, and Healthcare all moved to multi-day lows.
Note that there is a huge two-day earnings cycle of the Technology FANG stocks, which have a very heavy weight in the sectors and stock indices. Until there is evidence of prices reversing to close positive, the trend is bearish and additional losses look likely in the short run.
Outside of equities, the US Dollar showed evidence of slipping and appears likely to move down under 88 in DXY which would translate in EURUSD moving back higher above 1.26 in the short run. Crude and Gold’s decline wasn’t substantial enough to call for any real change in trend, but on signs of Dollar weakness, both should begin to rebound again. Energy could very well have another few days of weakness given yesterday’s low close, and still looks a few days early to buy weakness.
Overall, a defensive stance is preferred.
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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.
