A sell-off would be 'pretty healthy' and reset the uptrend, says Fairlead's Katie Stockton

Key Concepts

• S&P 500 breakout
• Measured move objective
• Overbought conditions
• Mega-cap earnings
• Market reset (pullback)
• Breadth (market rotation)
• Tariff headline risk
• Bitcoin breakout
• Altcoins (Ether, Solana)
• Dollar Index & 50-day moving average

S&P 500 Analysis

• Breakout Confirmation: The S&P 500 has broken out and confirmed that breakout, meaning it held above the breakout level for a couple of weeks. This breakout tends to foster additional upside momentum.
• Measured Move Objective: The breakout allows for a measured move objective of approximately 6880.
  • This objective is unlikely to be reached this year (2024) and is more relevant for 2026, based on the current trend trajectory.
• Overbought Conditions: While there are overbought indications, they haven't been very meaningful, and the loss of momentum relative to the move off the April low hasn't made a significant difference.
• Mega-Cap Earnings as a Catalyst: Mega-cap earnings are seen as a potential catalyst for a temporary change in market dynamics.
  • These stocks are entering earnings season with strong upside momentum and are overstretched, creating a "proof point" scenario.
  • A sell-off following earnings could be healthy, as it would "press the reset button" on the uptrends.

Market Health and Pullbacks

• Desirability of a Reset: A pullback is viewed as beneficial for normalizing the slope of the uptrend, preventing it from becoming too steep and leading to a dramatic correction.
• Breadth and Rotation: Despite the strength of mega-caps, there has been rotation benefiting other sectors, indicating a healthy market breadth.

Impact of Tariff Headlines

• Headline Risk: The market faces top-down headline risk, particularly concerning tariffs, which is a shift from focusing solely on individual company headlines.
• August 1st Date: August 1st is mentioned as a potential date for tariff-related headlines that could impact the market.
• Reactive Approach: The approach is to react to volatility-producing events by judging their impact on technical indicators.
  • Indicators are currently neutral short-term and more positive longer-term.
  • Willingness to adjust based on sentiment and the market's response to tariffs.

Cryptocurrency Analysis

• Bitcoin Breakout: Bitcoin has confirmed a breakout above $108,000, leading to a conservative measured move objective of $134,000-$135,000.
• Altcoin Strength: The rally has expanded to altcoins like Ether and Solana, which had previously been consolidating.
  • Breakouts in these altcoins are seen as compelling, potentially even more so than Bitcoin's breakout.
• Ether Resistance: Ether faces resistance around $4,000, a significant level.
  • A resolution to the upside would be a major development in the cryptocurrency market.
• Desire for Consolidation: It is generally beneficial to wait for consolidation before entering positions in Bitcoin, as it tends to stair-step higher.

Dollar Index

• Downtrend Intact: The dollar index's downtrend remains in place.
• 50-Day Moving Average: The 50-day moving average is a key level to watch.
  • A meaningful break above this level would suggest a period of dollar strength.
  • For now, the 50-day moving average is acting as resistance.

Conclusion

The market is currently exhibiting strong upside momentum, but overbought conditions and potential tariff-related headlines pose risks. A pullback would be healthy for normalizing the uptrend. The cryptocurrency market is showing strength, particularly in altcoins, while the dollar index's downtrend remains intact, with the 50-day moving average being a key level to monitor.