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Where Next After Daily S&P 500 Consolidation?

By Sunshine Profits (Monica Kingsley)ETFsJun 17, 2020 10:59AM ET
www.investing.com/analysis/where-next-after-the-daily-sp-500-consolidation-200528001
Where Next After Daily S&P 500 Consolidation?
By Sunshine Profits (Monica Kingsley)   |  Jun 17, 2020 10:59AM ET
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With yesterday's hefty gains taken off the table, and a new profitable position that has them secured already, will the S&P 500 let me add to the tally some more still today?

Given yesterday's Powell-testimony-induced wild swings and preceding strong retail sales data, it's not unimaginable that we're in for another enjoyable ride today as well.

Yes, I think that the grind higher in stocks remains on, slow or not so slow.

S&P 500 in the Short-Run

Let’s start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

SPX Daily
SPX Daily

As I looked for them to do, the stock bulls reasserted themselves, and the open long position profits kept growing post the Fed individual corporate bonds buying announcement, and I walked off with an almost 140-point realized profit as Powell didn't catapult stocks immediately higher. Worry not, my other open trade has been unfolding favorably as well, having ended with a 24-point gain!

But what about the daily chart?

The speed with which prices cleared the 61.8% Fibonacci retracement is lending credibility to the bull market thesis. It's not unexpected that a sharp plunge of Thursday's caliber gives way to a brief consolidation that attempts to move the market either way, eventually followed by similarly sharp rebound. That's a fitting description of what we have seen on Monday and yesterday.

Such were my observations yesterday:

(…) Reflecting upon the rebound's veracity, the still bearishly looking daily indicators are likely to turn much more positive for the bulls quite soon. Yesterday's volume also gives no reason to doubt the reversal, showing that buy-the-dip mentality won the day.

Should this paradigm hold, then the price consequences of the bearish wedge breakout invalidation and of the island top reversal, would be over pretty soon. I wouldn't be too afraid of stocks approaching the lower border of Thursday's bearish gap, or even of prices moving back near the declining support line connecting the March and May lows.

I consider these technical features as short- to medium-term challenges to the stock bull market, that the bulls would overcome. In other words, I treat the bull market as intact, and merely undergoing a healthy correction that wouldn't result in much technical damage.

They remain valid also today – and with the improving posture of the daily indicators, even more so. Yesterday's volume is certainly consistent with the daily consolidation hypothesis, meaning that stocks can continue higher.

What's the credit markets' opinion?

The Credit Markets’ Point of View

HYG
HYG

High yield corporate bonds (HYG ETF) gapped strongly, but gave up much of their opening gains as the Powell testimony kicked in. I would read the daily setback suffered as just that – a daily setback, and not a reversal. The volume doesn't point to corporate bonds moving lower, and their uptrend remains entrenched.

HYG:SHY
HYG:SHY

Both the leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY), and investment grade corporate bonds to longer dated Treasuries (LQD:IEI) – keep moving higher, with the less risk-on one (LQD:IEI) being in the driver's seat. The stock bulls have a reason to cheer both moves.

HYG:SHY
HYG:SHY

The HYG:SHY ratio with overlaid S&P 500 (black line) shows that stocks aren't getting ahead of themselves. Now that we have checked the closeness of their mutual relationship, the key question is of course the short-term path of both the ratio (with the HYG ETF being its arguably key determinant) and stock themselves.

In my opinion, that remains overall higher despite the many clouds on the horizon. After all, that's what bull markets do – they climb a wall of worry.

Key S&P 500 Sectors in Focus

Technology (XLK ETF) isn't too far from its early June highs, with semiconductors (XSD ETF) keeping pace. Healthcare (XLV ETF) has some more work left to do on the upside, which is similar to the financials (XLF ETF).

The performance of the stealth bull market trio of energy ((NYSE:XLE) ETF), materials (XLB ETF) and industrials (XLI ETF) hasn't been spectacular yesterday, but remains consistent with the unfolding upswing.

The many sectors are working to repair Thursday's damage, and technology with semiconductors is leading to the upside – it's as simple as that.

The stock bull market is still young, and far from a top.

Summary

Summing up, risk-on sentiment ruled yesterday's premarket session, and eventually recovered from the Powell testimony coinciding with downside volatility. The credit market analysis shows that the upswing isn't getting ahead of itself, and remains likely to continue. Treasury yields have slowly risen again, contributing to the recovery narrative and flight to stocks. Smallcaps (IWM ETF) are on board, leading the S&P 500 higher. This is just as good for the 500-strong index advance as its market breadth or technology's (and semiconductor's) leadership is.

Disclaimer:

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Where Next After Daily S&P 500 Consolidation?
 

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Where Next After Daily S&P 500 Consolidation?

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Comments (6)
Steve Neff
Steve Neff Jun 17, 2020 11:30PM ET
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if s&p breaks thru 3100 Thursday, it will be down to 3000 back to 3100 and then down to 2850, 2700ish then up to 3400. Covid is the only thing that could change that path
peter neal
peter neal Jun 17, 2020 7:09PM ET
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Second wave in progress / Biden wins / Democrats take Senate / I kid you not. / Technicals to follow......
Gulo Hemuls
Gulo Hemuls Jun 17, 2020 3:45PM ET
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Market correction lasts 3 days? And bear market lasts one month? That's definitely something new for market. Some people say that this time it's different. lol
Monica Kingsley
Monica Kingsley Jun 17, 2020 3:45PM ET
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Please find your question answered in today's article :)
Monica Kingsley
Monica Kingsley Jun 17, 2020 11:50AM ET
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I haven't seen much discussion since I answered, so please find your missing answers here - see my replies at the top: https://www.investing.com/analysis/yes-the-waterfall-selling-in-sp-500-is-over-now-200527868
el karl
el karl Jun 17, 2020 11:17AM ET
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which sectors is the best sectors to invest in now?
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Monica Kingsley
Monica Kingsley Jun 17, 2020 11:17AM ET
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el karl Contrarian is often termed to mean those who have the potential to catch up... It's a question of timing. Please remember that I make the index calls, and use sectors to get insights into where the index is going...
Jerry Blacklow
Jerry Blacklow Jun 17, 2020 11:17AM ET
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Financials. If they don't go up then the market won't go up long-term. Also less downside to financials since they are still closer to lows..
Monica Kingsley
Monica Kingsley Jun 17, 2020 11:17AM ET
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Jerry Blacklow  I would say that financials have more upside potential to catch up, and their time in the spotlight comes when the bull is a bit more mature than now. Market rotation by sector is a different topic entirely - people are more interested in the index as such, or not? Let me know... Still, tech is the engine of the stock advance.
el karl
el karl Jun 17, 2020 11:17AM ET
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Monica Kingsley   thanks for your opinion....i bought some industrial stocks yesterday
Monica Kingsley
Monica Kingsley Jun 17, 2020 11:17AM ET
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el karl Certainlyyesterday's low volume of the XLI ETF session is a good indication that the sellers' conviction to put money behind the daily downswing isn't really there. I don't see signs of a top in the sector yet, needless to say...
CG Beckham
CG Beckham Jun 17, 2020 11:16AM ET
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I think analysts should show the actual trades if they mention them in the article to prove their success.  Otherwise we just need to trust their statements and we'll never know if they are true
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Monica Kingsley
Monica Kingsley Jun 17, 2020 11:16AM ET
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CG Beckham Typo correction. Whoever reads my free articles and likes the outlook presentation / my insights, doesn't know what he/she misses through absence of trade calls and with only one article posted here, Sometimes, I open or close a trade within this analysis. It wouldn't be fair to paying subscribers if I just gave out everything they get with intraday updates and trading position details. My results are verifiable for each subscriber - you get access to all my previous calls and their EST timing, just go through that to see when each position is opened and closed. I feel it fair to let free readers see what I can do with the outlook for them - the Performance Page lays it out
Monica Kingsley
Monica Kingsley Jun 17, 2020 11:16AM ET
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CG Beckham In short, everything is verifiable on my home site, and also with every subscriber. The point of free articles such as this one is to let you see how precisely I identify the outlook, and what I can do for you. That way you get to know my style, also have access to what my closed trades actually brough in, and how my equity curve looks like as time goes by. Whatever I write, is backed up by real and transparent calls made to subscribers.
Monica Kingsley
Monica Kingsley Jun 17, 2020 11:16AM ET
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SK SPEEDY SERVICES Between Friday and Tuesday, I've posted 3 regular Stock Trading Alerts and 8 intraday ones. Within those three trading days, I've closed 4 trades - how is that possible to show within one free article a day here exactly when I've entered and closed the very same trade? How can that be realistically done when the entering or exiting usually happens after this article is posted here?
Monica Kingsley
Monica Kingsley Jun 17, 2020 11:16AM ET
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SK SPEEDY SERVICES All I can do for you, is to write about that the next day when I am presenting that day's market outlook. Remember, I can post here just once a day, and I am giving you already all the analytics free. It's the subscribers that enable me to share some of the fruits with you, and honestly present stuff that you're missing. At my home site and with the full archive of my trades, my track record is verifiable for every subscriber, old or new.
Monica Kingsley
Monica Kingsley Jun 17, 2020 11:16AM ET
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SK SPEEDY SERVICES There is a fine line to draw between what can be offered for free, and what is reserved for subscribers. Real-time notifications of trading decisions, trade position parameters including updates, are that line. Or tell me, where would you draw that line, and how would that be fair to subscribers who support my work? Again, you see my equity chart and all the trades within the Performance Page - updated once an open trade is closed. You get value, subscribers get the full trading service the moment any decision is made - and everything is verifiable on my home site, both once a trade is close and in real-time.
 
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