Bulls got off to a great start on Monday as the S&P 500 (SPX) quickly erased all of the losses from last week, states Jon Markman, editor of Strategic Advantage.
Unfortunately, the early rally ran out of gas. The benchmark S&P 500 finished at 4,121, a gain of only 0.3% after previously rising as much as 1.6%. I wrote on Sunday that if traders were really worried about another big decline for the S&P 500 in the near term, that concern was not showing up in the CBOE Volatility Index (VIX), a key measure of fear. Volatility slowed significantly last week, and that remained true on Monday.
The downtick in fear reflects indecision. Neither bulls nor bears are confident about the next big move for stocks. The benchmark is currently mired in an extremely narrow trading range, with critical support at 4,087, and overhead resistance at 4,177. My expectation is that bears will ultimately concede a kickback rally to the 50-day moving average at 4,240, where they should reload short positions. If there is no concession, and the index falls below 4,087 on a closing basis, expect a violent decline. There isn’t any important support until 3,810, the May low.
SA TradeView: Our ProShares UltraShort S&P 500 (SDS) position slipped 0.5% Monday to $43.40. Target remains $45.30; stop is $42.00 (after 11 am ET).
The Upshot
The Dow (DJI) was slightly higher at 32,915.78 and the Nasdaq (NDX) advanced 0.4% to 12,061.37. Consumer discretionary, communication services, and materials led the gainers while real estate and energy were the only sectors to post losses.
The US ten-year yield rose by 9.2 basis points to 3.05%, which is in the danger zone for stocks. West Texas Intermediate crude oil futures fell $0.03 to $118.90 a barrel.
Breadth favored advancers five-four, and there were 162 new highs vs 170 new lows. Big caps on the new high list included Exxon Mobil (XOM), ConocoPhillips (COP), EOG Resources (EOG), The Progressive (PGR), and Enterprise Products Partners (EPD). Once again, energy and insurance rule.
Solar stocks climbed on Monday, with Shoals Technologies Group (SHLS) rallying more than 21%, Array Technologies (ARRY) surging 18%, and Sunrun (RUN) adding 6%. President Joe Biden has declared an emergency to address the inadequate supply of solar cells and modules, permitting duty-free access to the US solar market by companies based in Cambodia, Malaysia, Thailand, and Vietnam.
Amazon.com (AMZN) shares gained 2% after the online retailer's 20-1 stock split took effect Monday. The company announced the split in March, which will give investors an additional 19 shares for every share they own.
Chinese regulators are set to restore the app of DiDi Global (DIDI) as soon as this week after ending a probe. The app was pulled from domestic app stores in July 2021 after a data-security probe was launched over national security concerns. US-listed shares of DiDi Global closed nearly 24% higher.
Likewise, JD.com, Inc. (JD), and Pinduoduo, Inc. (PDD), were the top gainers on the Nasdaq 100, with gains of 6.5% and 5.6%, respectively. Baidu (BIDU) rose 2.5%.
