Pre-Market Outlook

Keeping in mind the negative divergence in the NASDAQ 100, overnight distribution in the S&P 500 is neutral to bullish, with the S&P 500 achieving a new all-time high in the Globex session. Overnight action indicates acceptance of Friday’s strong closing prices thus far.

Nevertheless, we will be opening inside Friday’s range, and in the middle of the overnight range, so there is not much to guide us as to direction at the open. In the circumstances, I would rather trade later than sooner.

If sellers get some control this morning, I will be looking at the top of the single prints at 4912 and, of course, the roundie at 4200 as lines in the sand for positive or negative tone change. The index should find support around those levels, and failure to test those areas also should be carried forward as bullish. 

The next support level would be 4180 at the base of the spike – but reaching down to that level today would result in a slightly negative short-term bias.

Price action above Friday’s high has the potential to continue the rally. Of course, monitor for continuation, keeping the NASDAQ 100 weakness firmly in mind. Technology is 30% of the S&P 500 index and can stunt the rally with such a large divergence.

As mentioned in the View from the Top, there are more stocks breaking out of volatility squeeze bases than I have money to invest. Those might be good alternatives if the rotation from growth to value continues to distort the indexes.

A.F. Thornton