Technology Holds Key To The Next S&P 500 Move

 | Jul 27, 2020 08:57AM ET

Going into Friday, I was still sticking to the bullish S&P 500 outlook. As the index declined, are the prospects of higher prices gone?

Not at all, and today's analysis will examine the signs that still lean bullish despite the precarious technology position.

Despite the S&P 500 closing below the line connecting the early June highs, continued unemployment claims rising on the state level (don't forget about those rising ones under the federal pandemic programs either), the fate of the $600 weekly addition to unemployment benefits expiring at the end of July, or the U.S. – China confrontations.

On Thursday, I laid out the market's sensitivities this way:

(…) as strange as it might sound, the stock market isn't about the real economy struggles these weeks. All eyes are on the stimulus and vaccine hopes (whatever one imagines under the latter term), not on the corona case panic and hyped death charts.

Stimulus is coming, and regardless of its final shape and size, markets are going to cheer it. The Fed is no longer in a wait-and-see weekly mode. Stocks expect a policy move, and are still positioned to benefit before inflation or economic realities (thornier road ahead than many an alphabet soup recovery projection implies) strike.

Talking economic realities, what about the societal and interpersonal ones? Sobering snippets of overnight U.S. corona fear transformations courtesy of Big League Politics:

  • 75 percent believe that things will never return to normal
  • 59 percent are too afraid to go back to their workplace with others
  • 75 percent feel that handshakes will no longer be customary
  • 38 percent want physical offices permanently removed and replaced with remote work
  • 53 percent are nostalgic for the good old days when people weren’t forcibly masked while the rest have seemingly become accustomed to the "new normal".

Such shifts underscore why some sectors have it way tougher than others.

h2 S&P 500 in the Medium- and Short-Run/h2

I’ll start today's flagship Stock Trading Alert with the higher timeframe perspective (charts courtesy of http://stockcharts.com ).

The weekly candlestick (please see this and many more charts at my home site) bears shape of a reversal, but is it a credible one? Weekly volume didn't pick up, weakening the case for a trend change. The preceding week brought us a hanging man, and that didn't bring the bears out of their caves either.

The weekly chart is thus rather neutral in its implications, but given the non-refusal (by and large) of the move above the early June highs, I still interpret the chart as bullish rather than bearish.