S&P 500 futures (ESM1) (1339) are at a pivotal price point at 1340, with the path of least resistance seeming to be a technical and fundamental drop to support. Recent participation levels have been very weak, with some trading sessions close to 50% off daily averages on the main indices.
Adding to the bearish potential over the next two months of trade will be the lack of upside momentum generated from earnings-related news headlines. Recently published data from Q1 hedge funds that show a change in outlook toward Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) may also weigh on sentiment.
A trading signal will be generated to sell S&P 500 with a session close below 1333, which will target 1328, 1323 and in the mid-term 1315. The SPY (134.35) exchange traded fund that tracks S&P 500 futures momentum historically lags behind the main index, and a sell signal will start to not form until 133.50 is broken.
Investors who do not want to wait for their regional cash market to open, or do not have 24-hour access to the market they have open positions in, are able to access the 24-hour currency market. There is potential to analyze and trade currencies in a high-volume market that is supported by the global inter-bank system, which tracks the 24-hour S&P 500 futures market moves.
Investors can trade currencies in-line with a rising global market, or trade ahead of a falling cash market open. Being able to use currencies offers the opportunity to be in a trade before the regional market opens.
If S&P 500 valuations drop ahead of the next Wall Street session, investors will receive an alternate signal on a currency pair that mirrors the move, so that the trade potential can be accessed at any time. AUD/USD and EUR/USD are strongly aligned with S&P 500 direction, GBP/USD is also well aligned on days that do not have U.K. economic releases, as highlighted previously.
Adding to the potential negativity on equity indices is the outlook on high profile stocks, and the changes in Q1 hedge fund holdings. It would seem that Apple has lost the title of most widely held hedge fund holding, after 22 funds (over 10% of the total 195 that held Apple previously) closed their entire holdings of Apple, which will certainly impact the intra-day dynamics of the market going forward.
At the end of Q1, the most widely held hedge fund stock, according to David Kostin’s Hedge Fund Trend Monitor, was Microsoft, which increased the number of funds holding it from 161 to 181. Those hedge funds have racked up over 10% of losses on this holding alone. The pressure coming to bear from a negative turn in S&P sentiment, as highlighted above, may also impact MSFT as selling pressure will increase in an overall negative equity arena.
A daily chart sell signal on Microsoft formed Feb 22 11, with a drop below 26.90 targeting 25.00. Another sell signal on May 12 11, to sell from 25.20 targeting 24.20 also followed through. A four-hour chart sell signals formed Feb 01 11 from 27.50, which traveled as low as 24.70.
The one-hour charts have been a technical mess, but the 30-minute chart outlook reveals a descending trading pattern that is about to signal a sell signal with a break below 24.40 that targets 24.00 and 23.70.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.