Treasuries breaking out but Equities nearing resistance

Near-term and intermediate-term technical trends remain bullish for U.S. equities, and Treasuries have also begun to trend higher on the long end of the curve following a recent breakout on the short end.   However, the dropoff in Technology strength could pose a short-term problem for U.S. equity markets just as indices near a time window where weakness could be possible starting next week through the FOMC meeting.  Market breadth has proved a bit skittish in recent days, and momentum has rolled over a bit, which warrants some close scrutiny in the days ahead.  Moreover, cryptocurrencies have begun to show some near-term weakness, which should be watched carefully given their recent leading tendency for Equities. Overall, despite the lack of price weakness at present, I suspect the next 2-3 weeks might prove difficult before a rally materializes to carry SPX back to new highs into early October.  Bottom line, I suspect that 6500-6550 might serve as strong near-term resistance for SPX, while 6250-6300 could mark support on pullbacks in the weeks to come.  Following a minor drop in September, my expectation is for SPX to rally back to new highs.  It will be imperative to keep a close eye on breadth and any evidence of trend reversal over the next 2-5 trading days, which would fall into this key window for a potential reversal.

SPX price has pushed up to areas just below the highs of the recent range as of Thursday’s close.  While any sort of cautionary stance might seem puzzling given the lack of a break of the current uptrend (this remains the most important piece of the technical puzzle), it is worthwhile to note the dropoff in short-term breadth measures this week, along with momentum since July. Furthermore, Technology’s underperformance hasn’t shown evidence of starting to turn back higher, despite excellent movement this week out of $GOOGL, $WDC, $STX, and $ANET.  ($GOOGL is largely considered to be part of Communication Services.)

I think any reversal on Friday into next Monday should be respected as something which might kick off a short-term trend reversal for Equities. While Thursday showed no signs of this happening, I expect this could be possible into early next week.

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