Bears Strike but Bulls Hold Uptrend Channels

Bears Strike but Bulls Hold Uptrend Channels 

• For the week, the S&P dropped 2.6% while the Nasdaq and the Dow fell 2.5%. The Russell sank nearly 4%. Excluding the small-caps, the major indexes managed to hold their current uptrend channels despite the weakness.
• The bottom of the uptrend channels start off the April 7th lows, with the top of the uptrend channels coming from the April 9th intraday highs. There isn’t a lot of wiggle room before the uptrend channels start to crack with the S&P already showing signs.
• The big event to watch for this week besides tariff news will be Nvidia’s (NVDA) earnings report after Wednesday’s closing bell. The company is expected to post a profit of $0.85 a share on revenue of $42.71 billion. A beat and raised guidance should help the bulls at least hold current support. A miss and lowered guidance could spark some selling pressure.

Wall Street traded lower on Friday after President Trump threatened to place a 25% tariff on Apple’s products not made in the United States. He also stated tariffs of 50% could start in June on the European Union following stalled trade negotiations. Given the news, traders seemed a little hesitant to leave positions open over the three-day holiday weekend as volatility remained slightly elevated.

The Nasdaq traded to a low of 18,599 before settling at 18,737 (-1%). Key support at 18,750 failed to hold. Lowered resistance is at 19,000.

The S&P 500 ended at 5,802 (-0.7%) after making an intraday trip to 5,767. Support at 5,750 held. Resistance is at 5,850.

The Dow bottomed at 41,354 while settling at 41,603 (-0.6%). Support at 41,500 was tripped but held. Resistance is at 42,000.

Earnings and Economic News

Market closed on Monday

Technical Outlook and Market Thoughts 

For the week, the S&P dropped 2.6% while the Nasdaq and the Dow fell 2.5%. The Russell sank nearly 4%. Excluding the small-caps, the major indexes managed to hold their current uptrend channels despite the weakness, for the most part.

The bottom of the uptrend channels start off the April 7th lows, with the top of the uptrend channels coming from the April 9th intraday highs. There isn’t a lot of wiggle room before the uptrend channels start to crack with the S&P already showing signs. Obviously, a close below them and the major moving averages would imply a near-term top for the market.

The Nasdaq has been rangebound between 18,500-19,250 for 10 sessions following the May 12th breakout. Last Wednesday’s peak reached 19,241 with a close above 19,250 being a renewed bullish signal for a run to 19,750-20,000.

A close below 18,500 and the 200-day moving average would be a slightly bearish signal with additional downside action towards 18,250-18,000.

The S&P 500 is also in a 10-session trading range between 5,800-5,975 with the former representing crucial support. A close below 5,750 and the 200-day moving average easily gets 5,700 in focus.

Resistance is at 5,850-5,900. Multiple closes above 5,975 would suggest a pop up into the 6,000-6,100 range.

The Russell 2000 fell out of its uptrend channel last Wednesday and is currently holding key support at 2,000 and the 50-day moving average. A drop below these levels could lead to ongoing weakness down to 1,925-1,900.

Resistance is at 2,075-2,100. If cleared, the next hurdles would be at 2,125-2,135.

The Dow has basically been rangebound between 41,000-43,000 for 16 sessions. A fade below the former and the 50-day moving average would indicate further weakness to 40,500-40,000.

Resistance is at 42,000-42,500 and the 200-day moving average. A renewed bullish development would occur on multiple closes above 43,000 with last Monday’s peak at 42,842.

The Volatility Index (VIX) broke out of its DOWNTREND channel, which was bearish for the market, with Friday’s peak at 25.53. On May 22nd, we talked about closes above 24 being a warning flag for the bulls with stretch up to 26 and the 50-day moving average. If the latter levels are topped, there is upside risk to 30-36.

Key support levels are once again at 20 and the 200-day moving average followed by 17.50. The one day close below 17.50 on the previous Friday, or May 16th, was an early signal of a near-term market top when there was no follow thru last Monday, Tuesday and Wednesday.

The big event to watch for this week besides tariff news will be Nvidia’s (NVDA) earnings report after Wednesday’s closing bell. The company is expected to post a profit of $0.85 a share on revenue of $42.71 billion. A beat and raised guidance should help the bulls at least hold current support. A miss and lowered guidance could spark some selling pressure.

This week will effectively mark the end of the first-quarter earnings season for the S&P 500 companies. Over 90% of the numbers are in and the companies are on pace to have grown earnings by nearly 13% compared to the prior year. This is well above the 7% increase Wall Street had expected.

We talked about the back half of May being a historically weak period for the market. We expect volatility to stay elevated until tariff deals get worked out which will likely take a few months. In fact, as we are going to press, President Trump said that he agreed to an extension on the 50% tariff deadline on the European Union until July 9th.

The regular July options have 53 days from Monday’s open before expiration while the regular June options have 25 days before they expire.