The S&P 500 (INDEXSP:.INX) failed to match the bullishness of the NASDAQ Composite (INDEXNASDAQ:.IXIC), which has been a common theme in recent weeks. No change in outlook (still bullish short-term, 2-3 days) given that pullback attempts have largely failed to even get down under prior day’s lows.
Look for rally to extend up above 2424 up to 2435 before any real resistance.
Technical Thoughts
Despite some slowdown in Dow Jones Industrials and the S&P 500, there remains insufficient reason to avoid stocks, even in the near-term. The breakout in Semiconductor Index (SOX) on Tuesday is likely to carry NASDAQ even higher, and counter-trend methods remain at least a week away from signaling any sort of near-term peak in prices.
Meanwhile, Treasury yields and the US Dollar have both begun to show some evidence of rallying, which should serve as a tailwind for Financials, and provide some much needed comfort for the Risk-on sectors in the near-term, while the Defensives and interest-rate sensitive stocks face further underperformance.
The Advance/Decline does look to have peaked out on 4/26, but yet no meaningful signs of pullback. Additionally, it’s worth mentioning that SPX still has only 55% of all stocks above their 10-day m.a., and 59% of stocks above their 50-day m.a. which is thought to be a bit troublesome for markets that are pushing up to new highs daily.
However, until we see some degree of evidence of weakness in Technology, it’s wrong to avoid stocks, and there still looks to be upside into the end of the week and early next. Stocks like Apple, Inc (NASDAQ:AAPL) can be watched carefully in this regard, given their presence in many ETF’s and the weight in many indices, and this stock should begin to show some evidence of price exhaustion from a price and time perspective right around 5/17, the anniversary of the NYSE (based on prior time-based studies shown here.
Momentum has gotten very stretched in the near-term in Apple (AAPL), with weekly RSI up above 83 as the stock has risen 7% in the month of May alone, or over 10 points in the last seven trading days, averaging about 1 % per day. This rate of change is unsustainable in the near-term, and AAPL is unlikely to get above $160 without backing off, which likely should serve as the catalyst for a much needed correction. For now, it still looks early, and it’s right to stick with AAPL and with Technology.
S&P 500 Chart Analysis
The S&P 500 has stalled a bit after last Friday’s breakout, yet no meaningful evidence of reversals and/or weakness has transpired over the last couple days. Given the ongoing strength of the NASDAQ, it’s still right to respect this move in equities and expect S&P to climb up to 2425-2435 into next week before any peak is in place. Industrials, Consumer Discretionary, and Financials can still be overweighted, while Technology remains the chief Technical long from a relative strength perspective, and a group to still favor despite recent overbought conditions. A push back over 2404 for SPX cash, or June Futures for that matter, would allow for a surge higher of at least another 20-30 points which would represent a better area to consider taking profits from a risk/reward basis.
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