This week will be jam-packed, with just four trading days for the ISM PMIs and jobs data. It means there could be some extra volatility this week. The index didn’t have a great finish to last week, and we made an end-of-day move higher in the VIX index on Friday, which would suggest that some trades may have been trying to put on some last minute hedge positions ahead of this week’s data deluge.
S&P 500 (SPY)
The S&P 500 Futures were trading lower by around 20 bps on May 31, following last Friday’s end-of-day dive. It is likely that this week we head lower and close some of those gaps from last week’s rally. There is now a clear ABC pattern in the futures that was less clear before Friday. It would suggest a pullback to either 4,180 or perhaps as low as 4,120.
Gamma
Gamma levels for the S&P 500 are still at 4,200, with the next major level down at 4,150. It means that 4,200 will continue to act as a magnet this week. If it starts drifting too far from that level, puts will take over, and that will push the S&P 500 towards 4,150.
Wedge Pattern
There is a massive rising wedge pattern forming in the S&P 500 on the daily chart, with a clear bearish divergence forming on the relative strength index.
The problem is that pattern grows even worse when you look at it on a weekly chart. You can clearly see the bearish divergence (rising prices, falling RSI) on the weekly RSI, with it starting all the way back in January of 2018 and connecting with January 2020 and now. Additionally, as of last week, you can see that the MACD was now converging and very close to crossing over one another.
The index is already flirting with the low end of the uptrend, and a meaningful break of the lower trend could easily send the index off to a lower direction. It is not to say that we are about to enter some grand bear market, but the last time we had a major setup like this was in the fall of 2018.
The setup could easily suggest that we see a decline in the order of 10-15%, or even 15-20%. The same thing happened between 2010 and 2012, and there is no reason it could happen again at this point in the cycle.
JPMorgan
Financials have been in a market leader over the past several weeks, and JPMorgan (NYSE:JPM) has a diamond pattern forming, a bearish pattern. The RSI is trending lower, and the MACD is crossing over. Support for the stock comes at $157, with a break below $157, sending the shares lower towards $146.
Exxon
Exxon (NYSE:XOM) has been the leading energy stock, and it, too, has had its struggles. We wait to see if the stock breaks support at $54.50. If it does, it is likely to seal the deal on a double top, bringing out steeper declines.
Netflix
Netflix (NASDAQ:NFLX) has been flirting with this $470 to $490 level for some time, and no matter how good earnings have been, the market has not been able to push it higher. The momentum indicators are all trending lower, and I think it may only be a matter of time before the stock finally breaks down.
Ford
Last week, I noted Ford (NYSE:F) saw massive bearish puts trades being placed. The equity is completely overbought, and I don’t see why it couldn’t trade back to $13.40 for starters.
GE
General Electric (NYSE:GE) may have broken out, with that giant cup-and-handle pattern, and potential path higher towards $16.70. This stock was seeing a lot of bullish call option activity last week.
