S&P 500 Trading Update: Important Short-Term Resistance Into Month End

Mark Newton
s&p 500 index trading analysis price levels chart image july 31

S&P 500 Index Trading Outlook (3-5 Days): The key index is bullish but nearing resistance into the weekend at $327 on S&P 500 ETF (SPY).

Important that early am Friday gaps hold given the recent rollover in Technology.

Stocks like AAPL, AMZN, FB should all be watched carefully for any evidence of early gaps fading.

The S&P 500’s after hours Tech-led gains have carried the index back to near July 21 highs, an area which could offer resistance to gains as markets complete the month of July.

This looks to be a temporary area of importance for the S&P 500, and until exceeded, it needs to be respected as we transition to the month of August.

A close ABOVE 327.20 on SPY from July 22 would be very constructive, and would let this rally continue uninterrupted. For Friday however, entering trading with 3 of the largest cap Tech stocks all up 5% into the open makes for a difficult time to initiate new longs. In short, it’s better to wait for consolidation or backing and filling.

Fade? or Chase?

The late day surge after hours in the “Four Horsemen” or AAPL, AMZN, GOOGL and FB would be thought by many to be bullish, but it’s truly important that these gaps hold into the weekend.

There stands a chance of a reversal specifically for 3 important reasons:

First, SPY and QQQ are back to near former highs, and SPY 327, QQQ 265-6 along with QQQ 270 are important.

Second, we’re at end of month, the last trading day of July.

Third, Technology has been rolling over in the last couple weeks, so gaps as part of patterns that have been damaged lately are not the best technical setups to expect “all is better”.

However, the ability to hold the early Friday strength would still be much better than if these companies had whiffed, sending their stocks lower. Bottom line, it’s a must that these gains hold into the weekend, but important to be vigilant if they fail, as that would set the stage for at least a 3-5 day pullback.

Some of the minor concern heading into next week specifically concerns the recent bond market strength with yields pulling back to new monthly lows across the curve. One has to be a bit more selective in the weeks ahead, as the market should in fact make at least a minor peak sometime in August with the dates of Aug 13-19th standing out as being important, and September has historically been sub-par.

Additionally, we’ve seen negative momentum divergence on this runup into late July as compared to the early June peak. Thus far however, the ability of Discretionary, Healthcare, Industrials to rally back to help buoy the market is indeed a positive, along with Financials. Thus, breadth has actually improved in the last month like we’ve discussed. Any selloff would prove short-lived only and should allow for further strength into mid-month.

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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.

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