Stock Market Nears Important Time and Price Juncture Next Week

Mark Newton
s&p 500 index futures price analysis trading chart february 14

S&P 500 Index Futures Chart

As expected, early weakness failed to do much damage on Thursday as the stock market rallied back, resulting in no real damage.

I anticipate a final week push higher by the S&P 500 Index, perhaps to 3393-3405 which should be sellable into next week.

The S&P Index showed no meaningful deterioration, and in what sounds like a broken record, still should press higher into early next week as exhaustion counts are premature and trends have not been broken.

As we’ve learned lately, no negative news has served to derail the rally, whether it be tariff related, trade war concerns, Fed worries, signs of global economic slowdown, nor virus escalation.

Momentum has lagged prior highs in January and December, however trends are intact, and potential upside targets (3393-3405) are there for the taking if buying continues.

A close under 3300 would change this thesis, postponing any future rise.

Broad Market Commentary

Still premature to fade this rally in most indices, though the NASDAQ appears closer to levels that should result in a stallout and trend reversal, and Technology looks likely to peak out ahead of other groups in the days ahead. Some price/time alignment should make this rally finally worth selling into (early next week).

For now, stock market indices are less of a short (except for the most aggressive of traders with tight stops) than they are something to hedge by buying implied volatility again, and we’ll await some evidence of breadth starting to turn negative at the highs which can guide us as to the possibility of a turn next week.

Thursday’s early reversal however happened right near key support from the early February trendline low, and early morning weakness certainly did very little overall damage before grinding back again in a way that still makes fighting this trend premature.

Market breadth came in negative on the market’s fractionally down close, though volume was much heavier into Down v Up stocks. Emerging markets were hard hit given the Dollar’s reacceleration higher (largely vs Euro and various LatAm currencies, not as much vs Sterling or Yen) and China, as mentioned yesterday, looks to be nearing key make-or-break that likely results in a stallout for Shanghai Composite following a very healthy bounce this past week.

The key change this past week had to do with Defensives starting to strengthen sharply yet again, after they had just begun to try to turn lower on this recent recovery. Seeing breadth wane while Defensives outperform as the Equity put/call hovers UNDER .50 is not the best risk/reward to assume new longs. Additionally we’re finally starting to see INITIAL signs of various tech stocks stall out, particularly among the most overbought “FANG” stocks like AAPL, MSFT, with Facebook having taken the lead lower last month. More on this below.

For the next 48-72 hours, I expect breadth and leadership to continue to dry up on rally attempts, with the NASDAQ starting to weaken relative to the rest of the market as Defensives gain further ground. The bounces we’ve seen this week in Crude oil, Copper, and Treasury yields should all be nearing completion, and result in all three turning back lower into end of month. For the next week, the most important development will center on whether NASDAQ (this time around) takes the lead in violating the uptrend from October which had held during January weakness.

This would be the first meaningful signal of an impending Break for those looking. For the Bulls, its an absolute MUST that the defensives turn down sharply and we see huge leadership from Technology, Industrials, Healthcare and Financials not to mention Discretionary (the latter which has stalled , outside of AMZN, HD, NKE strength) As discussed, while XLF borders on record highs, the Banks simply aren’t trading that well, and stocks like BRK/B and JPM appear to be putting in minor tops. Thus, the stellar record of SPX and NDX has served as a bit of a mirage to the inner workings of many sectors of late, which have caught quite a few investor off guard. Stay tuned. And Happy Friday and weekend to All!

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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.