S&P 500 Trading Outlook (2-3 Days): BULLISH
The S&P 500 (INDEXSP:.INX) and broader market seem likely to rally into mid-to-late next week. And despite the a brief stalling out in the NASDAQ (INDEXNASDAQ:.IXIC), sectors like the Semiconductors remain quite strong and should keep tech elevated for a few more days.
As well, counter-trend “sells” are not yet present in the DJ Transports, Russell 2000 nor Europe which I feel should be registered and confirmed to have a more immediate bearish stance.
The slowdown is a minor concern in the NASDAQ, but the S&P 500 requires a move back down under 2485 for a bearish stance.
S&P 500 Futures Chart (Friday morning)
Technical Thoughts
Yet again, the market showed signs of poor follow-through after an attempted breakout, with the NASDAQ finishing lower, not surging to join the S&P 500. Stock prices are at new highs but still largely range-bound and sideways since mid-September, with a consolidation that bears an eerie resemblance to that which occurred back in mid-June into early July, and prior to that, March/April.
While it’s unlikely that the major stock indices make it past week 2 in October without stalling and turning down (cycles, counter-trend sells, and seasonality are all important), the near-term just has not shown sufficient signs of wanting to turn lower just yet.
The combination of a resilient Financials sector, along with Transports and Small-caps pushing back to multi-month highs, along with the Semiconductor sector looking quite bullish technically (in the near-term) all combine to suggest that fading this market just yet is a bit premature.
The reasons for bearishness in October have been well documented, so the new-found positivity is short-term only, but we’ll need to see some of the Demark signals come together now on TRAN, IWM, XLF, and SOX in a way that show a confluence next week and allow for a stalling out in prices. Europe was one of the key countries that shrugged off all the worries and turned higher quickly post German election, and SX5E still looks quite constructive near-term and will likely need to form its own counter-trend sells next week along with these US sectors to make a difference and suggest that this meager breadth should actually lead to at least a minor pullback.
For now, despite the weekly Sells in place for TNX, XLF, SX5E, the US sectors, along with indices largely show no signs of these present. This absence of alignment, combined with the Performance and new high records being set in September for “quietest” September ever and new highs being set, doesn’t argue strongly for fighting the trend just yet. While there looks to be an upcoming period late next week that is important, for those with a tactical short-term bias, it pays to stick with stocks a bit longer.
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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.
