Taking out the 2018 Highs May Be Tough This Week

The wind has been in the sails for a few weeks now, and the S&P500 is close to reclaiming the highs for the year.  The trade wars have shown little effect on the domestic market’s rise… until Turkey made the headlines.

The instability seems to have thrown a wet blanket on the market’s climb.  What is unclear is whether or not this is a sign of something more significant to come.  Turkey, as an economy, is relatively small.  And, while larger than Greece, it has its own currency instead of the Euro.  This makes the situation different than the Greece crisis which threatened to European Union more.

Given the market’s current behavior, issues with Turkey look more like a speed bump than a change in course.  Still, the concern of a strengthening dollar slowing down economic growth could make the Fed’s rate decisions more challenging.

Over the weekend the S&P futures declined to the 2820 level before recovering to what looks like flat levels for the open.  The concern will be if the larger market re-tests these overnight levels.  Any negative news that spooks things could be a pretty good indicator things will re-test near these lows looking for support.

Given the new uncertainty in Turkey, paired with the Fed’s current course of rate hikes, it looks like this week could be more of a sideways trader.  The low for the range is probably around 2820 for the SPX — with an extreme of 2800. A breach of this level would be viewed as problematic by most traders.

On the up-side, the story is still about trying to take out the highs for the year.  If the SPX manages to breach the highs for the year intra-day, that’s a good sign.  But the real trick is getting a close above the high for the year.  And if we close the week out above the highs for the year (probably unlikely this week), that gives a green light for the next leg higher.

Overall, the bullish technical trend remains in place.  Just don’t be surprised if this week trades a little flat-to-negative as the markets sort out what’s happening with Turkey and determine whether or not contagion is likely (which it probably isn’t).

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