Can central banks and sector strength propel stocks to new heights?

S&P 500 sharply recovered from yesterday‘s shallow premarket decline, and surged on ever strengthening sectoral composition. Tech didn‘t lag, and it was the case of remaining sectors playing catch up, and playing it well. My ES 4,440 zone gave, and even the 4,480 resistance was breached.

Today, stocks face similar situation – overnight consolidation followed by rejection of further retracements in the European session, yet ever present gyrations characteristic of prolonger, euphoric topping process. Just as the slightly better retail sales with Empire State manufacturing surprise helped in the misguided notion that recession has been avoided, today‘s University of Michigan consumer confidence data isn‘t likely to sink the market – yes, spike continuation (and let‘s see the breadth strength ahead) awaits.

For all the arbitrary 20% delineation line in the sand, I still think that a serious downside awaits whether as drastic as during the dotcom bubble bear market described in Sunday‘s extensive analysis, or not. Given the sharp run up and AI fires still burning hot, I have question marks whether low 4,015s are the realistic target (provided the fuel for this S&P 500 burns out over the next 1-2 weeks) in place of the formerly more easily imaginable low 3,900s.

The key determinant is here – yesterday was a prime example of antidollar plays surging, with more fuel in the form of BoJ remaining as easy as before, prospects of China stimulus, and of course bets against Fed rate hikes.

Mind you, for these bets (by extension also against Fed balance sheet shrinking) to pay off, the central bank would have to be spooked into monetary policy readjustments by negative economic data – and once the stock market realized why, why they are being forced to cut and cutting, then look out below.

Let‘s move right into the charts  – today‘s full scale article contains 4 of them.

S&P 500 and Nasdaq Outlook

ES is to remain firmly above 4,440 today and a volatile foray into 4,490 – 4,510 area is quite likely. 4,460 as support should hold on a closing basis today, and I‘m not looking for either tech or value losing steam truly – rather synchronized microtations are to be expected.

The following 1-2 weeks would show whether the improvements in market breadth are genuine and to last, or whether the cautious HYG:TLT ratio would presage downside move in SPY:TLT, meaning decreased appetite to chase stock market gains (sentiment already at extreme greed).