U.S. Equities Short-Term Outlook: Still Bullish

S&P 500 Futures: (2-3 Days)  Bullish

It’s thought that the late day rally in stocks on Thursday should follow the breakout higher in Treasury yields (INDEXCBOE:TNX) and begin to trend up to new highs in the days ahead.

While a neutral trend for the S&P 500 (INDEXSP:.INX) is an accurate depiction of the last six days, it’s better to favor an upcoming breakout given what has occurred with Europe (and treasury yields). This makes it likely that US equities will follow suit. A daily close above 2395 would be bullish in my opinion.

Technical Thoughts

Before I get into my technical thoughts, I wanted to let you know that I have a new free report called Newton’s 9 available – it details 9 stocks that I like right now – you can get it here.

Heading into end of week, the trading range for the S&P 500 remains intact. That said, the S&P 500 showed some pretty good signs of resilience in the face of massive deterioration in the Energy and Metals markets. The broad stock market index still lies less than four points away from its all-time high close made on March 1.

The combination of Treasury yields breaking out, European stock index breakouts to new multi-month highs, and better sector strength (healthcare and financials) is a powerful force that should clear the way for an upcoming breakout. I believe this to be more likely than a pullback in the short run.

Treasury yields have advanced out of their recent base, and look to be helping Financials to show better than average technical strength along with steepening the yield curve, which should be a real positive for Banks.

Commodities however, are moving in the opposite direction, with big breakdowns in Crude oil and Gold (as of yesterday’s close).  While these don’t necessarily serve as bearish forces for the broader market at this time, they have to be watched carefully as something that could result in ongoing weakness for High yield and for the Energy sector (which still looks early to bottom given Crude Oil’s violation of support) Furthermore, most stocks which correlate strongly with Metals have experienced real carnage in recent weeks, and this also looks to be something which hasn’t yet reached bottom.

Treasury yields globally look to be rising, and the Currency markets look to be on the verge of above-average volatility in the month of May.  For now, a bullish stance looks right for equities with the S&P 500 likely to follow Europe and treasury bond yields higher. This should help to the S&P 500 break out of this recent consolidation to the upside.

Chart Spotlight – German DAX

Germany’s DAX index broke back out to new all-time highs last week, and yesterday’s 0.96% positive surge helped to follow through on this breakout. Most of Europe showed above-average strength after just a mild consolidation attempt recently.  This remains far stronger than the S&P 500 after yesterday’s move, and should be overweighted as European banks are reflecting very good relative strength in the near-term (also above-average earnings reports are coming out of German companies).

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.