AI Strength and Falling Yields Keep S&P 500 Bulls Targeting 8,150

AI Leads, Retail Drags

Microsoft is up 3.85%, but not leading today. Dell is up 28.98% and Oracle is up 9.37%, with Micron trailing by only producing a return of 4.45%. The AI infrastructure trade is taking the lead again. Dell’s mover is tied to stronger AI server demand and a major guidance upgrade, while Oracle has been getting a boost from AI cloud enthusiasm and investor support.

But we see Walmart down 3.24% and Costco is down 4.34%. At the time of writing, the S&P 500 Index is more or less flat.

AI-Linked Stocks Lead While Retail Weakens

Chicago PMI Surges

The Chicago PMI was released today and it jumped significantly higher towards 62.7. It’s much better than the 50.5 forecast and a huge rebound from 49.2. So the business activity is going fine and well. More than well it seems.

Chicago PMI Jumps Well Above Expectations

Breadth Still Supports Bulls

Short term breadth is still positive with 55% of stocks above their 20-day MA. So a little more than half of the stocks in the S&P 500 Index are above their 20-day MA and could be construed to be trending higher. That’s good participation for the market.

S&P 500 Short Term Breadth Still Holds Above the 50% Line

Yields Roll Over

Yields appeared to have peaked around the 4.687% level. It then turned over, flipped the Supertrend to negative and crossed below the 21-EMA on the Renko almost simultaneously. Yields pressed upon the medium term 50-SMA and then crossed below it. Support has now become resistance. But the downside move appears to be exhausted. Despite the RSI below 50 and trending lower, the Z-Score SMA is at oversold territory. So we may get a pick up in yields in the short term. But if any rally wears off, we may see the US 10 year test the 500-SMA around 4.3%.

US 10-Year Yield Weakens From Recent Highs

S&P 500 Index Renko Holds

The S&P 500 Renko chart looks cool, calm and collected. The Supertrend has flipped green and the bricks are above the 21-EMA, 50-SMA and 500-SMA. The RSI is nearing 70 and trending higher. One thing to take note of is the bearish divergence in the Z-Score SMA. The indicator has turned lower while the bricks pushed higher. Positive momentum has slowed down so we are due for some sort of pullback in the S&P 500 Index. Probably a 1 to 3% decline for the worst. Nothing to be worried about. It’s all part of trading the markets.

S&P 500 20-Brick Renko Holds Above Moving Averages

The Verdict

Current Trend Direction: Bullish

Bias: Positive

Support Levels: 7,240, 6,780, 6,310

Resistance Levels: 7,450, 8,150

Medium Term Path: All eyes are on 8,150. But we may get a slight 1% to 3% pullback in the interim. I’m seeing some bearish divergence in the Renko charts with the Z-Score SMA. But you can’t want to play in the mud and not get dirty. Markets don’t go up everyday so you have to be prepared for some down side from time to time. A drop in short term market breadth as measured by the percentage of stocks above the 20-day MA, to below 50%, should provide some confirmation on the slight pullback.