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A ‘Win’ This Week Would Only be a Minor Victory

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The bulls seemed hesitant to pull the trigger and forge ahead to new multiweek highs last week. But without any economic news to get in the way and with earnings season all but over, would-be buyers got off the sidelines and into the game on Monday.

The S&P 500 closed at 2,109.41, its highest close since July, but it was the only index to do so. To validate the market's current bullishness; the Nasdaq and Russell 2000 should be leading the charge.

Furthermore, the mighty S&P 500 suspiciously stalled as it approached a key technical line in the sand. If it's going to clear that hurdle, it needs to do so on a valuation/fundamental basis, because there will likely be no news to drive stocks this week.

That, however, is arguably the best bearish case against the broader market. The S&P 500's trailing P/E ratio is a frothy 21.3, and the energy sector's recent losses can't get all the blame for that sky-high valuation.

Speaking of energy, the discussion of the oil sector's implosion is slowly fading. Energy was Monday's best-performing sector, up 2.2%, as oil closed at its highest level since July. Basic materials and industrial stocks were also strong, with both sectors gaining roughly 1%. These weren't dollar-driven gains either, as the U.S. Dollar Index only logged a small gain.

At the other end of the spectrum, utilities were down 0.1% and the only sector to register a loss.

Whatever the case, what limited volume there was behind Monday's gain was bullish. Advancers on the NYSE Composite outpaced declines by a margin of 2-to-1, while up volume was more than three times greater than down volume.

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Again, though, overall volume was quite light, and Monday's 0.5% gain in the S&P 500 cannot be counted as a majority opinion.

It's also noteworthy that Monday's high was right in line with major peak levels extending all the way back to July. The index was rallying quite nicely until it hit this resistance level. Even if the S&P 500 should clear it, though, there's another major hurdle just above at 2,135.

At that point, the trailing P/E would be more than 21.5. It's tough to imagine the index being able to tack on more valuation, even if Fed Chair Janet Yellen made it perfectly clear we have every reason to be bullish.

On the other hand, a major support level is developing at 2,071, where the 20-day and 200-day moving averages have converged. The S&P 500 has found support as well as resistance near this level multiple times since the market went into chop mode early last year.

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The S&P 500 wasn't the only index to run into an established headwind on Monday. While the Nasdaq dug a little deeper into new-high territory, it still barely made a dent in a minor ceiling at 4,971, near where it peaked in April. The bulls have mentally drawn a line in the sand there, even if it's only a self-fulfilling prophecy working against the market.

Conclusion

There's still a narrow path the market could take to a near-term breakout. Much of that will depend on what happens today and Wednesday, however. The market will need to set up some sort of base if it's to have a shot at moving beyond Monday's ceilings to the next tier of technical resistance.

If it punches through resistance, it should incite just enough bullishness to carry the indices that next 2% or so. But even if it does, we will again run into a valuation problem.

Seasonality may also pose a problem. On average, the S&P 500 closes down 0.1% for June, up 0.1% in July, and down 0.3% in August.

At the current juncture, the risk of a potential pullback is bigger than the risk of missing out. While we happen to be on the bullish side of the moving averages right now, that hasn't meant much as of late.

Today's Trading Landscape

To see a list of the companies reporting earnings today, click here .

For a list of this week's economic reports due out, click here .

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

The post A 'Win' This Week Would Only be a Minor Victory appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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