Stock Market Update: May 31, 2021
The stock market closed slightly higher today, with the S&P 500 up about 40 basis points. Interestingly, nearly half of this increase came in the final 30 minutes of trading, indicating a significant buy imbalance into the close. This activity could be related to month-end rebalancing, as today marks the last trading day of May.
Tariff Chaos Continues
The bigger story of the day revolved around the ongoing chaos surrounding tariffs. The situation feels never-ending at this point, with uncertainty looming over how it will ultimately unfold. However, there seems to be a determination to find a path forward. Notably, Section 232 tariffs remain unaffected, making pharmaceutical and semiconductor tariffs a significant target.
Currency Movements Signal Trouble
A clear sign of trouble was seen in the currency market, with the Taiwan dollar and the Korean won gaining strength. These two economies are closely linked to semiconductors, and movements in their currencies typically reflect sentiment, especially regarding technology, during times of tariff and trade tension uncertainty.
Technical Analysis Insights
- The yen initially weakened against the US dollar but reversed the move around 2 AM, strengthening by about 45 basis points by the end of the day.
- The S&P 500 initially rose in the futures market but most gains faded by the opening, leaving the index essentially trading at yesterday’s highs, still below last week’s peak.
- A potential "2B top" pattern is forming in the futures, indicating a possible reversal when prices fail to close above the previous high.
- The S&P 500 and Dow Jones show similarities to a diamond reversal pattern and a head-and-shoulders pattern, suggesting a potential reversal might be near.
- The S&P 500 Equal Weight ETF also displays the same pattern.
Market Outlook
The catalyst for a potential move lower remains uncertain, with possibilities like a hot economic report or a controversial statement from the President. Nvidia opened above $140 but failed to maintain those levels, facing rejection at the $140 mark. The path of least resistance currently appears to be downward.
In conclusion, the market’s technical patterns and the ongoing tariff chaos suggest a potential reversal ahead. Investors should remain cautious and monitor the market closely for any significant developments.
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