Stock Market Blowoff Top Here, Tough for Traders to Time

Mark Newton

S&P 500 Index Trading Outlook (3-5 days): Blowoff price move to the upside showing no evidence of stalling out just yet. INDEXSP: .INX

Here’s a few important things to point out for traders / active investors in this stock market:

Wait for a price reversal before assuming stock top is here.

It’s too risky to initiate new trading longs, in my opinion.

A sustained move over 3320 on the S&P 500 Index implies a blowoff continuation higher while a move under 3280 would be reason for concern.

US stocks have moved up at a clip that’s eerily reminiscent of January 2018, two years ago. No news really matters to shake markets, and bad economic news or earnings, not to mention geopolitical threats matter for a few hours only before the relentless rally continues unabated. Make no mistake, this market move is NOT normal, and is NOT something which should be able to continue technically into and through February without a major hiccup.
Heading into Friday, trends have not been disturbed, and momentum continues to grow even more overbought.

While Financials entered the week on a down note and possible source of headwinds for stocks, they’ve been replaced by outperformance in Healthcare along with Industrials which have kicked into gear.

Meanwhile the put/call ratio on monthly charts how is at the lowest level we’ve seen since at least the early 2000’s with more than 2 calls being bought for every Put. Yet it’s tough to stand in the way, and proper to simply exit that which has grown excessively overbought while using spare cash to simply buy long-dated implied volatlity as “VOL” has held up surprisingly well of late.

The key developments this week largely have centered on Credit NOT following stocks to new highs, but diverging as spreads have started to widen this week, despite ebullient stock prices. Bond yields have fallen while the Yield curve has begun to show evidence of breaking down. Yet follow-throughs on breakouts in Industrials and Healthcare are definite positives for now, and both show signs of making further progress. Yes, that’s 24% of the SPX that’s working just fine, WITHOUT the help of Technology which seems to go Up every single day.

Importantly (perhaps) Demark exhaustion is now at its most complete stage on daily charts since the beginning of December and SPX, DJIA, CCMP and many sectors like XLK, XLY now show completed TD Sequential and TD Combo sell signals. (Keep in mind the weekly charts are NOT aligned and still about 2 weeks away, which some Bears might not consider important, but typically are).

Momentum still is JUST at levels of December on daily charts despite the persistent rally.

Overall, the move to DEFENSIVES seems to be real, and breakouts in Utilities and REITS have made further ground lately, with both groups OUTPERFORMING Technology in the last 5 days. This seems important to note, yet, for now, nothing is all that important for the market outside of price moving higher.

Financial markets truly seem to be near exhaustion using traditional methods, but it’s proper to wait on the sidelines until the break gets underway, which should prove swift and severe. Long positions are recommended of course in stocks making higher highs and higher lows and higher opens, highs and closes. Yet, it’s proper to keep stops tight and NOT grow too complacent, as investor sentiment is growing more bullish by the day while momentum on a longer-term basis has flattened out and simply NOT able to push that much higher, if the charts on daily and monthly are any guide. Below there are a couple key charts that should be worth watching, and i’ll try to present a couple of bullish themes, despite an overall defensive tone.

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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.