A momentum trader’s view of the S&P 500

Price chart technicals look to be supporting a further move higher in the S&P 500, even though stock valuations in the index continue to look stretched. Marathon Oil, Schlumberger and Priceline are the stocks with the best momentum behind them.

Standard & Poor's building
Source: Bloomberg

The S&P 500 managed its highest close of 2016 at 2109, and the technicals on the price chart look to be supporting a move higher despite the recent disappointing US non-farm payrolls data and widespread investor skepticism. The S&P 500 has repeatedly found support around 2030 since mid-March, but had been struggling to break above 2100. However, this resistance level was breached last Thursday, and while there was a temporary dip after the non-farm payrolls data, the S&P 500 closed even higher on Monday. The market internals, such as the percentage of companies above the 200-day moving average, also seem to be lining up behind a move higher in the near-term.

However, valuations in the S&P 500 continue to look stretched with the forward price-to-earnings ratio hanging a full 1.5 standard deviations above the long-term average.

Marathon Oil has been loving the resurgence in the oil price. After rejecting the $15.00 level in late-April, it now is looking increasingly ready to retest it. On the Ichimoku cloud it is still in an uptrend, and on 3 June the Tenkan-sen (blue-line: shorter-term moving average) crossed above the Kijun-sen (yellow-line: longer-term moving average).

Schlumberger (SLB) is similarly feeling the boost from the oil price, but also Friday’s surprise increase in the US drill rig count. SLB gained 4.7% on Monday, and all the technical momentum indicators are lining up to support a retest of $81.50. 

Priceline had a nasty fall after its earnings disappointed in early-May, but it has definitely seen steady buying alongside rumours that it could be looking to buyout TripAdvisor. It has a key resistance level at $1370, but the technicals are indicating it has the momentum to push through it and break higher.

Essex Property Trust, alongside a range of other Real Estate Investment Trusts (REITs), has been hit hard as earnings from rental yields across the country have steadily fallen over the past month. Essex Property in particularly has been slowest to see its share price adapt to this more difficult outlook. The price just broke through the Ichimoku cloud, confirming the downtrend and looks to target its February low of $191.

UDR, the apartment REIT, is suffering from concerns about the US apartment market. Equity Residential, another apartment REIT, issued a profit warning last week which prompted the selloff in UDR. UDR’s stock looks like it has enough momentum to see it drop through key support at $33, and could test its September lows around $31.

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