The US SPX 500, along with other major US indices, rallied to an all-time high last week. What remains uncertain, however, is whether this is a sign of things to come or the last hurrah before a correction, as indices start to look technically exhausted.

Earnings season continues full throttle this week, which could keep individual situations active, while there is also the Federal Reserve meeting, non-farm payrolls, manufacturing PMI and pronouncements from the Trump Administration to look out for.


Technicals

The US SPX broke out of a 2,252 to 2,282 trading range last week, rallying up toward 2,303 before drifting back. While the breakout looked nice, other technical indicators suggest this could be a buying climax. Over the last three days, an Evening Star candle pattern has been forming with a bearish Shooting Star candle in the middle, a sign dominance may be starting to shift form the bulls to the bears. 

Meanwhile, the new high for the index was not confirmed by the RSI, a negative divergence. At the same time, the right shoulder of a head and  shoulders appears to have forming. Combined this suggests upward momentum may be exhausted and the index starting to come under distribution. 

The index remains in an uptrend above 2,282 with an upside measured test possible near 2,312. Should breakout point support fail, however, the 2,248 to 2,252 area could be tested which includes the 50-day average, a round number and channel support. 

Fundamentals

The street continues to respond favourably to initial directives from President Trump geared toward getting depressed regions of the US moving again whether through new business strategies, trade protection, deregulation or infrastructure spending. The catch, however, is that it’s one thing to sign an Executive Order and another to get Congress to open up the purse strings and fund projects. This week we could see more of a tug of war between a congress that wants to repeal Obamacare and bring in tax cuts and an Administration that wants to accelerate infrastructure spending. 

The potential that stocks may have priced in too much Trump too quickly could overhang markets. As it is, earnings expectations have been running very high with positive results getting yawns from the street and missed being crushed. This week, Apple, Facebook and Amazon.com lead another wave of big company reports. 

This week’s Fed meeting and big economic reports like manufacturing and service PMI, ADP and nonfarm payrolls could also influence index trading. Anything that points toward a potential rate hike in March would be seen as hawkish which could boost the Dollar and put a headwind in front of stocks. Anything that suggests the Fed could hold off until June would be seen as dovish, undermine USD and potentially put a tailwind behind stocks. 

 

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