U.S. Equities Trading Outlook (1-2 Days): BEARISH
Any rally attempts into expiration should be utilized to take profits, especially across most Technology and Financial stocks.
The Nasdaq 100 PowerShares ETF (QQQ) and the S&P 500 SPDR ETF (SPY) are stalling out and likely turning down early next week.
As I mentioned on Wednesday, I’m on alert for trend reversal, and looking for opportunities to take small short positions here (especially on any further rally into early next week).
A move under 2763 on the S&P 500 would confirm the pullback and target 2745 as the next minor support.
Broader Market News and Commentary
Thesis remains unchanged. Expect any upside to be short-lived with a turn lower by early next week. While equities successfully rallied yesterday, the index price action was a bit of a mirage as there was pronounced weakness in both Financials and Industrials. Most of the gains came from defensive sectors. Only Consumer Discretionary proved stronger, and most of this stemmed from Media stocks bouncing following the T/TWX deal.
Market Breadth was just barely positive. It’s worth noting that the Advance/Decline line peaked out a week ago, creating some divergence on most US Equity indice.
Industrials (XLI) have broken one month trends while Financials (XLF) have also continued lower as the Yield curve plummeted to under 37 basis points yesterday.
While stocks and bonds can sometimes move together, we’re still in a period where yields and stocks have been showing moderately positive correlation (+.22=R ). So it’s been unusual for both to trend sharply higher together.
The trend in US Treasury yields looks increasingly vulnerable. So given that yields have led stocks in recent months as explained above, it looks right to bet on Treasuries, not stocks between now and early July.
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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.
