Weekly Trader's Outlook

S&P Set for Another Weekly Gain but Signs of Exhaustion Emerging in Technology

June 21, 2024 Nathan Peterson
The SPX and COMPX once again set fresh record highs this week, but yesterday's price reversal in technology may be hinting that some consolidation of recent gains is needed next week.

The Week That Was

If you read last week's blog you might recall that my outlook for this week was "Slightly Bearish," largely driven by some concerns around the technically overbought status in tech. At the time of this writing the S&P 500 is up ~0.5% on the week but the Nasdaq Composite is lower by 0.1%, so the forecast wasn't entirely wrong. Also worth noting is yesterday's intraday bearish tech reversal, which may be suggesting that some type of an exhaustive "breaking point" was finally triggered following a long string of gains. Tech leader Nvidia saw its stock gap up to all-time highs yesterday, running at an exceptionally hot Relative Strength Index (RSI) read of 83, only to reverse course and close lower by 3.5%, representing a roughly 7% intraday swing in the share price. Keep in mind that today is a quarterly "triple witching" expiration (meaning the simultaneous expiration of stock options, stock index futures, and stock index options) and the open interest in tech options has been on the rise, so that may have something to do with the heightened volatility witnessed over the past 24 hours or so. So, does this mean the tech rally is over, at least on a near-term basis? It's too early to say, but these types of reversals potentially can represent a near-term top for the following reasons: a) investor confidence is rattled; b) FOMO/dip buyers get punished rather than rewarded for committing capital to the uptrend; and c) the sell-off creates an "overhead supply" of shareholders who bought at higher prices, potentially putting a near-term lid on subsequent rally attempts. Next week we should have a better sense of whether tech needs more mean reversion before stabilizing, but the other question for markets is: If tech corrects, does rotation into other underperforming areas of the market occur? Yesterday we saw money flow into energy and financials, and these are the two best-performing sectors behind IT and Comm Services over the past five days.

Outlook for Next Week

At the time of this writing (1:30 p.m. EDT), stocks are modestly lower across the board (DJI – 9, SPX – 11, COMP - 37) after briefly trading in the green, in what has been a bit of a bumpy triple-witching-expiration trading session. Near-term traders are likely wondering whether yesterday's reversal in the tech sector was a one-day sell-off related to a highly levered triple-witching expiration, or a harbinger of a larger pullback to come. Technically speaking, I don't feel that yesterday's pullback was enough to work off the overbought nature (more on this in the "Technical Take" section below) and/or the excessive optimism around AI, and at the same time I respect how powerful uptrends/momentum can persist. The push/pull nature of markets and these types of setups can translate into above-average volatility, and I suspect next week will be no exception. In addition to the technical setup, we'll get earnings from Micron on Wednesday, Personal Consumption Expenditures (PCE) Prices on Friday, and let's not forget the quarter-end Russell 2000 Rebalancing that same day. Therefore, my forecast for next week is "volatile and slightly bearish." Yes, the uptrends are still intact on an intermediate term basis, but the recent excess, both in terms of positioning and sentiment, has not been worked off in my view. What could challenge this outlook? Continued money flow back into technology following this recent pullback and/or cool inflation data out of the PCE report.

Other Potential Market-Moving Catalysts:


  • Tuesday (June 25): Consumer Confidence, FHFA Housing Price Index, S&P Case-Shiller Home Price Index
  • Wednesday (June 26): EIA Crude Oil Inventories, MBA Mortgage Applications Index, New Home Sales
  • Thursday (June 27): Advanced International Trade in Goods, Advanced Retail Inventories, Advanced Wholesale Inventories, Continuing Claims, Durable Goods Orders, EIA Natural Gas Inventories, GDP – Third Estimate, GDP Deflator – Third Estimate, Initial Jobless Claims, Pending Home Sales
  • Friday (June 28): PCE Prices, Personal Income, Personal Spending, University of Michigan Consumer Sentiment - Final


  • Tuesday (June 25): TD Synnex Corp. (SNX), Carnival Corp. (CCL), FedEx Corp. (FDX), Worthington Enterprises Inc. (WOR), Progress Software Corp. (PRGS)
  • Wednesday (June 26): Paychex Inc. (PAYX), General Mills Inc. (GIS), Micron Technology Inc. (MU), Levi Strauss & Co. (LEVI)
  • Thursday (June 27): McCormick & company (MKC), Walgreens Boots Alliance (WBA), Acuity Brands (AYI), Nike (NKE)

Economic Data, Rates & the Fed:

It was a relatively light week on the economic front, which was highlighted by soft consumer spending data along with strength in the services sector. Here's a summary of this week's economic data:

  • Retail Sales: +0.1%, below the +0.3% expected but above the (downwardly revised) -0.2% in the prior month; Core Retail Sales (which excludes vehicle sales): -0.1%, below the +0.2% expected
  • Initial Jobless Claims: 238K, above the 235K expected, but below (upwardly revised) last week's 243K
  • S&P Global US Manufacturing PMI (Preliminary): 51.7 vs. 51 expected
  • S&P Global US Services PMI (Preliminary): 55.1 vs. 54 expected (best since April of 2022)
  • S&P Global US Composite PMI (Preliminary): Composite 54.6 vs. 54.5 expected
  • Leading Economic Indicators: -0.5%, worse than the -0.3% expected, but slightly above the -0.6% reported in the prior month

Bond yields are up slightly on a week-over-week basis, mostly driven by this morning's better-than-expected S&P Global Manufacturing data. Yields on the 10-year are up modestly (to 4.26% from 4.21% last Friday) while two-year yields are up nearly the same amount (4.74% from 4.69% last Friday).

Market hopes around the potential for Federal Reserve rate cuts saw a slight increase this week, which was influenced by a mix of soft retail sales and strong manufacturing/services data. The Bloomberg probability of a September rate cut currently sits at 71% versus 76% last Friday. However, keep in mind last Friday's strong Nonfarm Payrolls report which pushed rate cut probabilities lower across the curve.

Technical Take

S&P 500 Index (SPX + 1 to 5,473)

Last week I referenced the elevated Relative Strength Index (RSI) reading in the S&P 500, noting that the RSI won't necessarily tell you when a pullback will occur but does suggest that one might be approaching. Yesterday the RSI on the SPX hit 77, encountered some selling pressure which was largely driven by the tech reversal, and formed a bearish engulfing candle on the charts. As you can see in the chart below, bearish engulfing candles have led to some minor pullbacks in the SPX so far this year, but yesterday's candle was not as "engulfing" as the ones seen back in April and May. Additionally, the RSI is still sitting a relatively hot 73 this morning, and typically a larger pullback, say into the low to mid 60's, would be consistent with a healthy consolidation. No doubt the longer-term uptrend in the SPX is intact, but this is a weekly blog and I'm not convinced yet that yesterday's pullback was enough to work off the recent excess so I'm staying in the cautious camp. Near-term technical translation: slightly bearish

Bearish engulfing candles; RSI still elevated.

Source: ThinkorSwim trading platform

Past performance is no guarantee of future results.

Nasdaq Composite Index (COMP - 12 to 17,709)

Similar to the SPX, the RSI on the COMP has been extended for a while and was briefly above 80 yesterday before the reversal in tech hit. The RSI is still elevated at 71 this morning and we also are coming off yesterday's bearish engulfing candle. You can get a sense of how stretched we are to the upside by visually observing how far the index has moved above the 20-day SMA (aqua colored line) in the chart below. It's not uncommon to see some "mean reversion" back to this near-term indicator when these periods of outperformance occur. Also worth noting is yesterday's bearish engulfing candle in Nasdaq leader NVDA (more on this in the intro above), which I view as an orange flag. Next Wednesday we'll get earnings from Micron (MU), which has the potential to provide some spark back into the AI/chip trade, but not enough for me to alter my near-term cautious stance. Near-term technical translation: bearish

Bearish engulfing candle; RSI still elevated.

Source: ThinkorSwim trading platform

Past performance is no guarantee of future results.

Market Breadth:

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages. On a week-over-week basis, while the SPX saw a slight uptick in participation, both the Nasdaq Composite and Russell 2000 saw meaningful declines on a week-over-week basis. Also noteworthy is that the drop off in market breadth in the Nasdaq Composite, from ~50% to the current 39% in five weeks, despite the index notching a fresh all-time (intraday) high yesterday. This dynamic speaks to the narrowing of leadership, said otherwise, the money flow/chase into mega-cap tech, chip makers and AI-related beneficiaries. Versus last Friday, the SPX (white line) breadth ticked up to 69.68% from 68.88%, the COMPX (blue line) ticked up slightly to 39.70% from 43.59%, and the RUT (red line) dropped slightly to 46.60% from 50.65%.

Nasdaq Composite hit all-time high yesterday, yet market breadth at five-week low.

Source: Bloomberg L.P.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (25 today): Arista Networks Inc. (ANET - $7.54 to $331.65), Costco Wholesale Corp. (COST - $0.24 to $862.19), Eli Lilly & Co. (LLY + $3.14 to $889.13), Hilton Inc. (HLT - $0.57 to $217.24), Nvidia Corp. (NVDA - $2.93 to $127.85), Oracle Corp. (ORCL - $0.68 to $142.23), Walmart Inc. (WMT + $0.17 to $68.18)

This Week's Notable 52-week Lows (88 today): Baidu Inc. (BIDU - $0.02 to $88.79), Bristol-Myers Squibb Company (BMY + $0.39 to $41.43), Capri Holdings Inc. (CPRI + $0.18 to $31.13), Elbit Systems Ltd. (ESLT - $0.50 to $178.89), Five9 Inc. (FIVN + $0.54 to $40.82), MongoDB Inc. (MDB - $0.70 to $219.74), Snowflake Inc. (SNOW - $0.86 to $125.76)

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the Options Disclosure Document titled "Characteristics and Risks of Standardized Options" before considering any option transaction. Call Schwab at 1-800-435-4000 for a current copy. Supporting documentation for any claims or statistical information is available upon request.

Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure Statement for Futures and Options prior to trading futures products.

Investing involves risks, including loss of principal. Hedging and protective strategies generally involve additional costs and do not assure a profit or guarantee against loss.

The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. Data here is obtained from what are considered reliable sources; however, its accuracy, completeness or reliability cannot be guaranteed.

All references to subjects (securities, indexes, futures contracts, and options contracts) were derived based on screens conducted by the writer for certain anomalous activity such as volumes, volatility and other related market data. As needed for brevity, the writer may have applied discretion when choosing among screen outputs for inclusion. Such discretion may have been based on news reports or other considerations of public interest. The views or opinions are those of the writer, and are subject to change without notice. All referenced subjects were chosen for illustrative purposes only and should not be considered recommendations, offers to sell, or solicitations of offers to purchase.

Please note that this content was created as of the specific date indicated and reflects the author's views as of that date. It will be kept solely for historical purposes, and the author's opinions may change, without notice, in reaction to shifting market, economic, business, and other conditions.

This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

Past performance is no guarantee of future results.

Digital currencies, such as bitcoin, are highly volatile and not backed by any central bank or government. Digital currencies lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Due to the high level of risk, investors should view Bitcoin as a purely speculative instrument.

Schwab does not recommend the use of technical analysis as a sole means of investment research.

​Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Commodity-related products carry a high level of risk and are not suitable for all investors. Commodity-related products may be extremely volatile, may be illiquid, and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions.

All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. Supporting documentation for any claims or statistical information is available upon request.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Indexes are unmanaged, do not incur management fees, costs, and expenses and cannot be invested in directly. For more information on indexes please see schwab.com/indexdefinitions.