S&P500—Pausing or Reversing?

For the first time in many months, the S&P500 lost ground two weeks in a row. While the prior week’s loss was 0.2%, last week’s loss was also tiny—down only 0.13%. Volume was very light, so there was no real conviction behind the selling. And volatility didn’t change much: the VIX index remained just above the record lows reached earlier this summer and fall.

Last week’s US macro results were mostly negative. Producer prices, both headline and core, came in hotter than expected; this puts pressure on corporate earnings in the near future. Retail sales were mixed: while headline sales were slightly stronger than expected, the core (excluding autos) sales figure was weaker than expected. The Empire State manufacturing survey came in well below expectations. Business inventories missed. Initial jobless claims were much worse than predicted. The Philly Fed business outlook survey missed. And so did the Kansas City Fed manufacturing index. Only industrial production and housing starts beat expectations.

In terms of technical analysis, the two small consecutive weekly losses on the S&P500 have not really changed the outlook on the weekly charts. These two losses are barely visible. So from a weekly chart perspective, the picture is still bullish. Sure prices are totally stretched to the upside and are ripe for a multi-week pullback, but the actual pullback cannot be called with a lot of confidence. If anything, the recent pullback looks like only a pause in a longer-term upward move.

On the daily charts, however, the recent pullbacks have changed the outlook. Today, there’s a more clear indication that prices may be heading downward, at least in the short-term. MACD and RSI for example are rapidly diverging downward, suggesting that there may be some more short-term selling in the near term. So at least according to the daily charts, look for some sort of near term pullback in the S&P.

 

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