Stock Market Rally Continues but a Trading Reversal Nearing

S&P 500 Trading Outlook (3-5 Days): Expect Stallout / Reversal

This reversal should occur between Thursday and Monday, with strong resistance at 2905. A close below 2848 on the S&P 500 Index (INDEXSP: .INX) would signal a reversal.

The S&P 500 has now risen for five straight days, which historically has led to at least a bit more strength in the days to come.

In this case, prices are entering the first of two key time zones for trend change. The first starts Thursday into next Monday, and the second will take place at the end of next week.

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Stock market breadth has stalled a bit, while momentum has failed to keep up with prices push back to new highs. Overall, until there is evidence of price turning down to take out 2848 on a close, it’s worth still sticking with this rally, but yet looking to rotate out of groups like Technology and into Healthcare. Specifically for the next 3-5 days, Consumer Discretionary looks to be an outperformer into next week, and should be favored for outperformance.

In regards to the S&P 500, we’ll need to see some degree of weakness to pay attention with daily closes under 2848.

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US Equities Summary & Analysis

Stocks staged just minor reversals from intra-day highs yesterday, though no real damage was done by the close, with prices failing to take out prior lows and trends still very much in place. Breadth came in marginally positive around 3/2 with Tech and Discretionary doing all the heavy lifting, while we saw some definite evidence of Staples and Energy making pretty sharp pullbacks. 

My view is that Technology has limited upside here, based on the S&P 500 Information Technology index back up at former highs, while momentum has lagged for the last two months. Parts of Tech like the FAANG group still look to be able to extend on a 3-5 day basis, but my thinking remains that it’s right to consider taking some profits and shifting into Healthcare or into Transportation. On a very near-term basis, there was some definite strength in the COnsumer Discretionary group which still looks to lead between today and early next week, while the Consumer Staples group looks to be breaking down and can be avoided.

Overall, its right to be far more selective at this stage of the rally and there are some cyclical facotrs that could allow for a minor top in stocks by early morning Friday into next Monday. If this doesn’t work, than 4/9-4/10 is the next most important area. VIX in particular rose to new multi-day high closes yesterday, which is odd given the market rally and typically makes it worthwhile to pay attention for the potential for a reversal.

However, it’s thought that a 3-5% pullback into end of April would be buyable, and for now, cannot be confirmed given the lack of weakness. One should stick with Discretionary into next week and buy weakness in Healthcare, while avoiding Tech at this point along with Staples.

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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.