U.S. Equities Trading Update: Upside Limited

S&P 500 Outlook (2-3 Days):   BEARISH

Upside is likely limited into Expiration as the rally stalls.

There’s been no change in thinking given lack of movement here lately. While near-term trends have been positive, prices have the potential to reverse course into early next week. As stated yesterday, further gains likely find strong resistance near 2500-5 before reversing course.

Prices should be watched carefully for any evidence of reversal, and selectivity is very important at this stage of the rally.

Any move under 2443 would signal a retest of the August lows.


Technical Market Thoughts

Upside should continue to be limited into next week. As mentioned, extreme selectivity should be required for new longs.

The equity markets have now traded in one of the lowest ranges seen in years this week. And despite the lack of progress in either direction, they continue to show interesting developments that are “eye-opening” for what could be in store in the weeks ahead.

It’s important to reiterate that following one of the biggest surges back to new highs seen in six months that happened this week, (a 1% move which brought the S&P 500 back to new highs), has produced literally ZERO follow-through. The major stock market indices have largely stalled out, after just a minor lift in market momentum and breadth. However as of yesterday, market breadth came in flat again, and Utilities led, while the early surge in Energy faded. The Financials Sector (NYSEARCA:XLF) backtracked with Treasury yields having hit a wall of resistance near 2.20% that held by days’ end and , while Financials backed off.  The yield curve flattened out substantially, while Gold and silver firmed as the US Dollar backed off again.

Overall, the next few days will be important as to how all of this shakes out. It will be paramount for Tech to begin a larger rally to help markets hold their ground into next week.  If both Tech (NASDAQ:QQQ) and Financials continue to drift lower, like we saw yesterday, markets run the risk of a larger selloff, simply given the stalling of momentum after an attempted upswing. (Many might think of this as a ball being tossed up which loses momentum and then falls).  We’ll need to see some evidence of some strong follow-through after expiration.

However, next week has been primarily quite negative over the years, with only 5  post September expiration weeks being positive in the last 25 years. The big developments this week have largely centered over Energy’s resurgence, while Financials had attempted a similar move. Interestingly enough, Technology has been quite weak of late, even with Semiconductors showing good strength. Yesterday’s Technology performance finished negative on the day which included nearly a 1% gain in Semis. Bottom line, something has to give in the days ahead.  While the minor gains in Healthcare and Tech have been positive, the stalling out of most sectors in recent weeks has been a concern, and very few sectors are hitting new high territory, despite the Advance/Decline being back at new highs. We’ll need to see what kind of sector rotation can happen in the days/weeks ahead.

Chart Spotlight: Nasdaq 100 ETF (QQQ)

As talked about over the last few days, the Nasdaq 100 and ETF (QQQ) have reached an area of real importance, and further upside might prove difficult into late September. The daily charts show patterns of successively higher highs, while Counter-trend sells have just appeared on daily charts which were confirmed and should lead down to 144 initially. Any move above the highs of the last couple days would postpone a decline, allowing for a push up to near 146 on a 4-6 trading day basis before peaks are in.

However, the NASDAQ 100 does not appear like the best Technical risk/reward given its stalling out of late. See chart below.


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Twitter:  @MarkNewtonCMT

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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