U.S. Equities Reach Higher But Market Reversal Likely

Mark Newton

S&P 500 Trading Outlook (1-2 Days):  CAUTIOUS

Yesterday’s surge brought prices right up into the sweet-spot for what could be a reversal similar to what’s happened in recent months into mid-month.

I’m looking to sell into 2803-10 for the S&P 500 (NYSEARCA:SPY), thinking that this area is important trading resistance.

Movement down to new multi-day lows would be something to consider following, and not buying right away.

Expecting Thursday’s push back to new highs represents a much better risk/reward to sell into given classic divergences, near-term overbought conditions while breadth and momentum have waned in the last week.

 

S&P 500 Futures Trading Chart

s&p 500 index stock market top price analysis chart july 13

Specifically in Technology, exiting gains and taking profits looks prudent. I’m watching for reversals – and if a reversal is going to happen, it should happen today into Monday.

One particular cycle hits mid-month that I’m watching which could have importance in causing strong upside resistance for SPX at 2805-10 and reversing course, and if a stallout/reversal is going to happen, the key times for this month are now, and at the end of July.

Thus with Summation index and Advance/decline having stalled out in the last week and turned lower, we’ve managed to push higher on less than optimal breadth while momentum is still under pressure after the peak and selloff from mid-June, so classical momentum indicators are not following prices back to new highs for Nasdaq 100 (NDX), and could be problematic at a time when Technology seems to have hit some meaningful resistance.

Financials will truly be the key given the degree that this group has lagged. And given the push higher in the Dollar index while a threat of a China response to Trump’s 200 billion Tariff re-raise, it seems like a good risk/reward to lighten up at a time when optimism has risen yet again.

Much of the optimism is due to Technology’s comeback, with GOOGL, NFLX, AMZN, FB, AAPL all showing recent strength.  Meanwhile, groups like Utilities and telecom, REITS have all outperformed Technology in the last month.  Overall, I favor cutting risk and flattening out while adding exposure to implied volatility at current levels, thinking “Vol” has gotten well too cheap with what’s happening both technically and also on the geopolitical front.  The next 2-3 trading days will confirm whether this thinking is right, or whether this rally can possibly continue into July 26-7. My thinking is it’s right to take some profits here, technically and flatten out and await what happens, looking to pounce on any decline Friday or Monday in thinking it might extend.

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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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