It looks to me like the market is not sure what to do next …. earnings are expected to be great for the remainder of the year, in part because of the tax reform pushed through by the Trump administration. The next corporate earnings reporting season begins in a couple of weeks, and with the first quarter’s OpEx getting behind us with the conclusion of this week’s action, I think that the market is going to resolve the mixture of signs that it is currently presenting us.
Here is what I mean by that …
S&P 500 Index ETF (SPY) – Daily Chart
The S&P 500 daily chart has clearly pushed higher of off the early Feb correction lows … while price has pushed up into resistance, the trend strength histogram has pulled back in a corrective/consolidation move. That indicator is now in the Contraction Zone and after a contraction phase, traders should expect an expansion phase to follow.
Will price expand higher or lower … I think the market wants to go higher, but earnings and the marginal buyer of equities is going to have to help things out going forward. Typically I like to see how the other parts of the market are doing to get a sense of which way the S&P 500 wants to go. Before I do that, let’s take a look at the 195-min SPY chart.
S&P 500 Index ETF (SPY) – 195 Minute Chart
You can see more clearly that price has really only pushed up into the SLOT resistance zone, and has not really finished resolving itself yet. The indicators included on this chart clearly indicate that bulls need to be a little careful here getting too big too quickly with their position sizes. There will be a time to make bets for the next expansion phase, but right now is not the time, or at least that is how it looks to me.
NASDQ 100 Index ETF (QQQ) – Daily Chart
Tech stocks have without a doubt been the market darlings for quite some time now. I won’t show them here in this post, but the FANG stocks don’t look like they are going to be able to lead the market here for the next little while. Another sector of the market may need to step-up to the plate here for the next break higher if that indeed is what is going to happen. The Tech Sector represents about 26% of the total market now so Tech is undoubtedly an important driver going forward.
Russell 2000 Index ETF (IWM) – Daily Chart
The IWM ETF has bounced up to the prior high … the next couple of weeks into earnings season will be an important catalyst for the small-cap index if price is going to break out sustainably into new-high price territory.
Cheers … Leaf_West