U.S. Stock Market Trading Outlook (3-5 Days): Bearish
I expect US stock markets have begun a short-term topping process that should result in a 5 percent decline in stocks into early or mid-June.
I plan to sell into strength over the short-term.
Broad Market Overview:
I think the late selling on Thursday kicked off what I believe should be the start of a selloff in our rally from late March/mid-May lows.
This could give back some of this advance into early to mid-June before yet another rally attempt into mid-July.
Here are 5 reasons that suggest a short-term selloff is near:
1) Near-term overbought conditions – While Daily RSI is not yet overbought, RSI on a 2 and 4 hour bar chart has reached overbought levels and looks important as a minor negative for the short run
2) Technology waning- we’ve seen signs of rampant sector rotation all week, but it’s tough to see Tech moving up rapidly with the NDX right up near prominent former highs. This sector outperformed sharply since March, so the large-cap FANG stocks could certainly give back some ground, and at 26% of SPX Tech waning would be important
3) Early negative breadth on Thursday 5/28 rally attempt. I anticipate that even on a Friday or Monday bounce breadth will be negative
4) Demark indicators are finally in place on both a daily and weekly basis to suggest upside exhaustion is in place (TD Combo/TD Sequential/SellSetups)
5) Defensive trading came back in a big way on Thursday and this happened actually as Equities were rallying in the morning. Utilities gained nearly 3% but managed an impressive short-term breakout that argues for further follow-through
The positives will be discussed over the weekend, but largely center on Sentiment being still quite negative with AAII survey released on Thursday still showing more Bears than Bulls. This uncertainty which seems to grow by the day based on additional issues should serve to put a floor in on this decline as fear will start to elevate much quicker than normal on a decline.
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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.