S&P 500 Analysis: Conflicting signals arise just off its all-time high

• The S&P 500 is less than 4-points from its record high
• While a bearish reversal candle has formed, recent history shows similar scenarios to be bullish
• Yet asset managers are stepping away from their aggressively bullish exposure
• My bias is for near-term gains while keeping a watchful eye on market positioning in the coming weeks

Depending on which metric you prefer, the S&P 500 either reached a record high on Wednesday or is tantalisingly close one. With a daily close of 6083.86, it trades less than 4 points below its all-time high (ATH) on the daily close chart. But if we’re to use the intraday high of 6100.81, a new one has been set.

Still, the fact the day closed with a mini shooting star which failed to close above 6100 shows a hesitancy for the market to push higher. What makes it odd is that it was done on Trump’s first full day in office. Traders are clearly in watch and wait mode, seeking the next catalyst with a clear line in the sand for bulls and bears at 6100.

The technical analyst within me naturally has me on guard for a pullback. But a glimpse at recent history shows that each hesitancy around a prior record high has generally resulted with a bullish breakout. And the one time it didn’t resulted in a mere 3-day retracement before the bullish trend resumed anyway.  

S&P 500, Dow Jones, Nasdaq 100 futures

Price action on Wall Street futures also suggests some further upside for the S&OP 500 cash index. The S&P 500, Dow Jones and Nasdaq 100 futures charts are amid a strong bounce from their respective support levels from last week, and each market appears to have some more headroom before reaching testing their record high – which could act as resistance.

S&P 500 futures are ~0.85% beneath the record high, which translates to ~50 points of upside for the S&P 500 cash index before the futures market retests its ATH. Therefore, my near-term bias is for further gains on Wall Street, unless of course a fresh, bearish catalyst arrives.

S&P 500 futures market positioning – COT report

One thing to keep in mind however is that asset managers are not as bullish on the US stock market as they were. While they remain heavily net-long S&P 500 futures, asset managers reduced their gross-long exposure for a seventh week. -42k long contracts were close last week, and -152k were closed over the last seven. They also increased their gross-short exposure by 23.4k contracts to drag net-long exposure to a 23-week low.

This may not spell impending doom and still allows the S&P 500 to continue higher. But if the trend of real-money accounts pulling out of, or betting against the S&P 500 continues, it could spell trouble for the stock market.

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