10-7-26 Can the S&P 500 Breakout Hold? | Before the Bell

0:00This breakout yesterday was fine. We headed new all time high yesterday. Everybody's all excited. We need to maintain that. Markets are going to open down this morning about 25 points on the S&P. So we're going to give kind of drop back down into this trading range safe. The market doesn't recover. And we continue to move out and clearly break out new highs. And this is going to be a failure. And we're just going to be back in this consolidation range, which is possible. Here's what you need to know before the bell this morning. Markets hit all time highs yesterday, great news. And the one thing that we've talked about here over the last few days is this divergence we have between kind of technology, really, really overbought and extended, and then kind of everything else has been really beaten up. And over the last couple of weeks, we've kind of gone through looking at different sectors of the markets, looking at the interest rate sensitive sectors like utilities and reads and real estate and staples and financials and how much those have really been beaten up as of late. And we've been discussing this potential

1:00for a bit of a breadth rotation in the markets. The one thing about breadth, and there's been a lot of commentary about this. And we've talked about this on the show is that when breadth is in a decline, the market breadth is declining. So the number of stocks trading above their 50 day moving averages are declining, or the number of stocks above their 2nd day moving averages are declining. When they're in the middle of that decline, that typically suggests that markets are weak at that point. And generally markets are either declining or consolidating during something, which is exactly what we see. But when they get to more extreme levels, as we saw lately, that typically denotes where the market gets close to a bottom, and you start seeing a bit of a reversal, and that breadth begins to expand out a bit. And that's actually what we're seeing right now. So here's the S&P. And this just broke out some all-time high-ears thing. Now we're going to now two things first, technically, before we get anything else. This breakout yesterday was fine. We hit a new all-time high-ears state. Everybody's all excited. We need to maintain that. Markets are going to open down this morning about 25 points

2:01on the S&P. So we're going to drop back down into this trading range state. If the market doesn't recover, and we continue to move out and clearly break out to new highs, then this is going to be a failure. And we're just going to be back in this consolidation range, which is possible. So again, just because you broke out yesterday, there's a lot of times people say, oh, we broke out. Go by. Be careful about buying the initial breakout. Let's make sure it sticks first. What would be great is, is the market moves up here a bit. We finish up flat today. As an example, come out of the gate. We get some buying coming in. But see this market clearly break out to the upside. That's going to be a much better buy signal than a failed breakout, which potentially we'll see how today ends. But that could be the case today. If we just drop back into this trading range, and come back down to test moving averages, then we're just really stuck in the same position. Also note that the 20-day moving average is very close to crossing below the 50-day moving average. That's also just a sign of a bit of a momentum weakness. Markets aren't really trending higher,

3:03not surprisingly here, that the market's just gone nowhere. The 50-days caught up to the 20-day moving average. We need to see all this continue to progress upwards if we're going to see this break out and move higher into the end of the year. And statistically speaking, that's what we should see. We're just not there just yet. But importantly, though, we are starting to see breadth. And this was, we talked about earlier this week, we changed our models a bit, rebalanced our portfolios over the last couple of weeks, moved, took some profits in the growth, moved back into value just a bit. And that was because of this whole breadth issue. And again, so here's the Equal-Wated Index, which has been under much more pressure, very different picture than the market-cap-weighted index, which has been driven by all the big technology stocks. This is the Equal-Wated Index, which takes that bias of those big mega-cap stocks out of the performance. But you're seeing that this is now starting to turn up. And we're starting to see that breadth over these last couple of days now starting to expand here a bit. And we're also seeing it in the relative sectors as well.

4:06Nice move in utilities yesterday. This was part of this big jump yesterday that we had in utilities was a function of an agreement for nuclear power that was put out yesterday. So we saw a lot of the utility stocks, particularly in the constellation energy and others that were related to kind of nuclear power in general. Start and see real take up. But we're triggering a buy signal from a very oversold level on a momentum basis. So again, we're starting to see that rotation coming out of these other areas and move back into some of these more beaten up positions in the markets. And we talked about these opportunities. Same thing for financials, starting to show a little bit of an uptick here. Financials, if you get into the actual banks, underlying fundamentals for a lot of these major banks are very, very good right now. Loan loss reserves, et cetera, all in a very good position. They've been very beaten up just simply because of the spike in interest rates and provided a really good oversold condition. Financials haven't triggered a buy signal yet like utilities have, but we're starting to see that occur. And again, just as we start to look through this,

5:09kind of different sectors, we're starting to see some of that breadth kind of turnout. Real estate started to show a little bit of a bottom here. Not yet, hasn't really completely formed, but we're starting to see a little bit of an uptick here. So we'll need to see if this follows through importantly. And if Brett does begin to recover, we should see a bit of a broadening out in the markets. Again, it's a bit early right now, but we are starting to see some early signs of some of that potential rotation in the markets where some of these more oversold beaten up areas of the markets get a little bit of attention. And that's why, again, we talked about this rotation in portfolios to add a little bit of this value, you know, kind of oriented sectors back into the weightings of the portfolio. So there you go. That's what we've seen before the bell this morning.