My Charts Say: Take the Summer Off
I hate to tell you this, but I think the stock market is likely to be pretty darn dull for the next few weeks. And really, lackluster trading action could be the story for the rest of the summer…
We’ve already had a lot of excitement over the last few months. Mini-bank crisis, debt-ceiling, AI stocks broke out, the S&P 500 entered a new bull market, a Fed meeting came and went without a rate hike – maybe a little break from all that action would be a good thing.
Here’s why, I think.
The second quarter ends next week. Fund managers will be shuffling their holdings around, adding a little here, subtracting a little there. But with the gains we’ve seen, they won’t be making any big bets on anything…
Because second quarter earnings are right around the corner, with JP Morgan (NYSE: JPM) kicking things off on July 14. Second quarter earnings aren’t expected to be particularly good – analysts expect the companies of the S&P 500 to earn around 3% less than they did in last year’s second quarter.
Now, it’s possible that when companies report 2Q numbers, they could offer better guidance for the third quarter. Right now, analysts believe that 3Q numbers will be flat vs last year. So I suppose we could get a little enthusiasm going if expectations rise for the third quarter…
But whatever happens with earnings, it will come against the backdrop of the latest inflation data and the next interest rate decision from the Fed.
June inflation data comes out the same week that 2Q earnings start. We get June CPI on Wednesday, July 12 and PPI the very next day.
And then, after all that, it’s a two week wait for the July Fed meeting on Wednesday July 26.
Right now, the consensus is that the Fed will raise interest rates another 25 basis points at the July meeting. And maybe the June inflation numbers will encourage the Fed to stand down on the 26th.
But regardless, I just don’t see much in the way of bullish catalysts over the next few weeks. And the dull market could easily stretch all the way through July…
Now let’s have a look at what the S&P 500 chart says…
What the Chart Shows
Here’s the updated 1-year chart for the S&P 500…
The rising red line that underpins the daily glyphs is the rising trendline.
The red line at the top shows the previous 52-week from August 2022, and also shows how the index tested that level – 4,300 – as it established a new bull market on June 8 and then broke above it on June 9th.
Here’s a 3-month version of the same chart, to see it a little more clearly…
The S&P 500 is currently ~65 points above red line support at 4300. I’d say a test of that level is absolutely coming soon.
And from there, it would only be another 100 points (2.3%) lower to get a test of the 50-day moving average (rising purple line) which currently sits at 4,202. Even though that is likely, let’s just pencil it in for now…
Finally, we must consider the potential for the third possibility: a test of the rising trendline, which interestingly coincides nicely with the 200-day moving average (black line), down in the 3,990 to 4,025 range.
While such a drop wouldn’t be fun, it would be an 8% decline, hardly worth panicking over.
Now let’s have a little fun – is if this hasn’t already been a barrel full of monkeys.
Here’s a scrolled out version of the 2-year chart, with each glyph representing one week…
I know, the all-time highs are a little obscured at the top left of this chart. But those highs aren’t the point just yet. What I’m looking at is the potential for the S&P 500 to move back between the two red lines – rising support on the bottom and the horizontal support/resistance line at 4,300.
I think it makes a lot of sense for the price action to squeeze tighter and tighter between these lines until we get a new breakout in the late August – mid-September time frame.
Of course, there’s no guarantee the market will conform to the neat little scenario on these charts. Still, it can be helpful to lay out some parameters for what’s possible as a way to frame the market’s action. It will be fun to see how this plays out…
That’s it for me this week. Take care, have a great weekend, and I’ll talk to you on Monday
Briton Ryle
Chief Investment Strategist
brit.ryle@protradertoday.com
Facebook: https://www.facebook.com/ProTraderToday
Twitter: https://twitter.com/BritonRyle
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