The past week was spent observing intently the market developments, which included a G20 meeting, the highly anticipated Trump-Xi trade war truce meeting, and then a 4th of July mid-week holiday, and ending with Non-farm Payroll (NFP) data at the end of the week. What might have been a volatile week was in fact rather muted, albeit some thing to note about the NFP… last month, when the data was terrible, markets rallied bullish in anticipation of Fed rate cuts; and a month later when the NFP data was pretty decent and well, the markets sold off in worry that the Fed would not cut rates that aggressively much at the end of the month. LOL.
Meanwhile, taking stock of the past week’s action on the S&P500 futures…
The weekly chart shows some bullishness to test the rising wedge resistance, particularly after a gap. The MACD is turning bullish again in support. Note also that our BUY signal had been activated. We are looking at an impending breakout of a rising wedge… a little unusual but not impossible. Technical upside targets are at 3100, and then 3300-3350 by September 2019.
The daily chart clearly shows the gap and run scenario, with supporting MACD. Similarly suggesting an imminent breakout of resistance.
While the charts look hunky-dory, if we take a zoom out look to compare the Nasdaq, the Russell2000 and the DJ Transports, a divergent picture is noted… SIBNC Ethel September 2018 high, the S&P500 appears to be powered by large caps, and very obviously the Technology sector (preceding higher highs and continued bullish leadership). However, there is a huge divergence as observed through the Russell2000 small and mid caps, as well as the DJ Transports (lower panels). This would be a major red flag for me to be wary of this bull run, and a very big qualification for a Cautious Bull scenario as the turnaround to confluence can be very swift and drastic with high volatility.
Having said that, it may be a couple of weeks to months before the rubber bands snap. The junk bonds suggest a RISN ON scenario, while the Value Geometric line lags. Again, a Cautious Bull scenario is suggested. The bulls would be consoled that the TLT ETF (Treasury bonds, lower panel left) appear over stretched and due for a healthy retracement very soon, indicated by the topping out candlestick patterns. Similarly, the SDS UltraShort inverse ETF also shows no indication for a reversal at the moment.
In conclusion, by any measure, it appears Bullish, but not without repercussions of a return to confluence from bearish divergence… albeit much later. This rally has some legs to go, and would be wise to watch for the turn.
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