S&P 500 Index Trading Outlook (3-5 Days): Bullish
Possible stall out in and around 3000 for 1-2 days, but I expect a push higher toward 3027 into the Federal Open Market Committee (FOMC) Meeting next week.
The S&P 500 managed to exceed highs of the last four days consolidation, which puts prices up near highs hit two months ago in July.
Technically a retest looks likely into next week. Yesterday did signal the first TD Sell Setup since the bounce from mid-August got underway. Thus, there could be some minor stalling.
However, Technology still looks to push a bit higher, and should help to lead this move, along with Healthcare, and a further rally in Financials given that this group has been following Yields which look to hit 1.80% TNX into next week ahead of FOMC.
Market Insights, News, and Analysis
The S&P 500 is now within striking distance of former July highs at 3027.
Sectors like Technology, Industrials, and Transportation have all pushed to just underneath areas, which constitute resistance in my view. While the near-term trend remains bullish, this next 3-5 days “should” be a time to consider taking some risk off and selling into this move ahead of FOMC. Treasury yields are still trending higher, and this has been important to monitor along with the stock index progress, and TNX looks to likely hit 1.80% into next week without too much trouble.
Meanwhile, the US Dollar index looks to extend gains a bit further into next week, as its movement Wednesday (particularly vs the Euro) looked bullish and can lead to additional strength. Breadth was positive but not outrageously bullish, and just fractionally positive. Yet the act of having exceeded the highs of the last 4 days trading range is in fact positive and can allow for additional upside.
The key short-term negatives at this point have to deal with near-term overbought conditions in many Tech and Financial, Industrial names, while TD SELL SETUPS are now present in S&P (9 consecutive closes above the close from four days prior) Often the presence of these can result in a slowdown.
Interestingly enough, the presence of this happened exactly as S&P moved outside the range that’s held prices range-bound in the last few days. Additional negative is that former prominent highs are typically tough to simply get above right away and often result in a stalling out.
The bottom line, the near-term view remains positive, and consolidation should still prove minor before reaching 3026-9 area in S&P near highs from two months ago. However, the risk/reward is growing worse for this rally off August lows, and it will be increasingly important to be more selective, particularly in groups like Technology which are facing increasing regulatory scrutiny at a time when Growth has started to fall out of favor. For now, it’s thought that XLK has a “last gasp” type move to 84-85 and it’s right to stay long this area. However, other groups like Healthcare, discussed below, should start to work better and one might consider diversifying into this group which has been a laggard, vs sticking with Tech or Industrials as these groups near resistance.
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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.