S&P 500 Trading Update: Targeting New Highs Into Next Week

S&P 500 Trading Outlook (2-3 Days): Bullish

Yesterday’s pullback on the S&P 500 (INDEXSP:.INX) failed to do much technical damage. I believe it’s still right to remain long here, expecting a move up into Expiration and/or early next week to 2455 (low end) / 2475 (high end).

Until prices move to this target, or fall below 2416, the trend remains bullish.


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The pullback yesterday failed to do enough technical damage to turn the trend down, but we’re beginning to see increasing signs of weakness in High Yield Bonds (NYSEARCA:JNK). This follows WTI Crude Oil weakness, and a slow rollover of Emerging markets and Emerging market currencies. This could turn out to be a bigger deal than many think.

Near-term, the Healthcare Sector (NYSEARCA:XLV) has helped to replace the lagging leadership of the Technology sector (NASDAQ:QQQ). That said, it’s going to be important for the Financial Sector (NYSEARCA:XLF) to stabilize and strengthen more materially sooner than later, as the 5/30 and 10/30 yield curves are flattening substantially given the strength in 30-year treasury bonds.

On an Equal-weighted basis, the S&P 500 has been falling vs the Cap-weighted SPX since last December, and it’s important to point out that the Russell 2000’s move back to new highs proved extraordinarily short-lived on an absolute basis, while Russell 2000 vs SPX looks to also have turned back lower.

For now, sector rotation has come to the aid of Tech to help bail out the market, but both Industrials and Discretionary were down over 1% yesterday, while Financials also sold off to the tune of over 0.80% as well.  If this recent push to new highs is going to have longevity, we’ll need to see some stabilization fast. However as pointed out above, SPX still has made little to no real technical damage to its trend over the last few months, and Tuesday’sdecline failed to even take out the prior day’s lows.  So for now, the uptrend remains very much intact.

The surge in 30-year Treasuries, however, should be watched carefully, as inflation expectations have been diving of late, largely following the implosion in WTI Crude.  While the 10-year yield has largely stabilized, the 30-year yield has plummeted and looks to fall further in the days ahead, similar to Crude, which could get down near $40 with energy likely weakening another 2-3 weeks before any meaningful support (from a Demark timing perspective based on my analysis)

For now, I’m watching the 10 Year Note Yield, the US Dollar, Emerging markets, Crude Oil, Technology and Financials is important, looking for any evidence of US Equities starting to break uptrends (which for now, has not happened).


Chart Spotlight: S&P 500 Futures (ES)

The S&P 500’s pullback attempt failed to take out the prior day’s lows, while breadth finished around 2/1 negative. Not a hugely negative session, but given the cross currents of emerging market weakness, definitely something to pay close attention to.  For now, if 2416 holds, the trend is bullish and the sweet spot for selling into this move lies above at 2455-75 into early next week. At present, I think it still pays to be long, utilizing minor weakness to buy.

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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.