True, there was some pretty strong jobs data and a reassurance from the FOMC last week that rates aren’t going to go rocketing higher any time soon. Still, the 4th of July holiday fell on a Wednesday, and Tuesday was a shortened day. PLUS, it was the beginning of the 3rd quarter. What does this all add up to? Vacations – for lots of the major market players. That’s why last week’s market movement needs to be taken with a grain of salt.
It’s not that the data didn’t matter. It’s that fewer participants were around to adjust to it. If the futures are any indicator though, folks liked what they saw last week. The SPX is poised to move another third of a percent or so higher (if the futures are right). And the technical pattern showed a pretty solid reversal at 50-day moving average (just above the 2700 support level).
In spite of all the tariff and trade war talk, the markets continue to produce strong earnings. Even without multiple expansion this is a recipe for higher stock prices. And that seems to be what’s in store right now.
For the week, look for 2800 to be the resistance area to watch on the SPX. Or, more specifically, 2771 and 2788 as pit-stops on the climb to re-take 2800. Regardless, the stage is set. If this week can produce a climb higher, it’s likely the January highs will be soon to follow. If for some reason the SPX manages to close below 2700, then we’re still stuck in the sideways trade (or worse) — but that seems like a low probability at this point.
As an aside, those who watch the DJIA as a key indicator may be disappointed for a time. With the recent turnover in holdings — and the market’s infatuation with tech — this index has been in opposition to a lot of major market trends this year. In the BigFoot database, it’s the only major index that has a wait signal associated with it. Otherwise, most signals have re-entered the market. So keep that little tid-bit in the back of your mind. The non-financial mega-caps have not been the best performers of 2018.
As another aside, financials as a block have seem to struggle a lot recently as well. This may be a key week for them, given that, as a sector, they’ve experienced a greater-than-10% correction for the year. This could prove an interesting technical re-entry point (though don’t misconstrue this as a recommendation to buy – it’s merely a commentary that the sector may be nearing a technical low-point).
For the week, look for a positive bias to the SPX, with 2800 being the next major resistance area to test.
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