S&P 500; US Indexes Fundamental Forecast – March 3, 2017

U.S. equity indexes continued to drift lower early Friday after yesterday’s steep sell-off. The March E-mini S&P 500 has given up over 75% of this last phase of the “Trump Speech Rally” which I define as 2365.75 to 2401.00. This should raise some flags especially since the high day was also the biggest volume day of the year. Do I hear whispers of a blow off rally?

Technically, I think chart watchers will get nervous if 2365.75 is taken out and could start to panic if 2357.50 fails as support.

Fundamentally, earnings season is over, the Fed is getting ready to raise rates, the elections in France are coming up quickly and Trump has yet to deliver the details of his economic policy plans.

As primarily a technical-based trader, I have to admit that it’s been a while since I’ve seen this kind of momentum in the stock market. And by momentum, I mean investors who willing to buy strength. I think I’ve gotten used to buying value, or the dips.

My main concern is that trading momentum takes skill and the willingness to dump stocks when the momentum dries up, and I don’t think today’s money managers know how to exit a market that has been driven by momentum. The short-term investors know how to do it, but the longer-term investors don’t know how. This leaves them vulnerable to bull traps. And it’s starting to look like a bull trap has been set.

Quick! Where did the March E-mini S&P 500 Index close last Friday? Ready … 2365.00. Where did it close on February 28?  At 2362.75.

So at 2375.00 at 1000 GMT, the futures contract is up 9.00 points for the week and 12.25 points for the month. Given the current volatility, a sneeze could drive the index into these levels.

If momentum has burned itself out, then what is left? Value. Using any traditional measurement of value, do you really think value as defined by the shrewd professional money managers is measured as last week’s and last month’s close? I don’t think so.

Therefore, I have to conclude that we are closer to a top than to the next buying opportunity. Start to look for protection if a long-term investors. Once the Fed is out of the way on March 15 then investors will have nothing to watch except Trump and the French elections. These two factors will be enough to encourage investors to take a little off the top and move to the sidelines.