Rally falters but still crosses finish line

• SPY stumbled early on as yields refused to buckle, but the rally continued.
• Earnings season kicks off with Coca-Cola and others this morning.
• Apple looms large as a beat is needed for this rally.

Equity markets were struggling for direction on Monday but largely decided to keep pushing higher. We still have the Fed dovish noises ringing in our ears from Friday, and hopes are high that earnings season will be better than feared. So far the consumer is still spending despite higher prices, and consumer discretionary stocks are for the most part pushing higher prices onto consumers and maintaining margins. Whether this is the case at the more luxury or higher end of the market remains to be seen. We note some very alarming car sales data and price-cutting circulating. 

Tesla cut the prices of its vehicles in China as widely reported yesterday. This is likely in response to slumping demand. 

SPY news

All eyes will turn to Apple (AAPL) to see if the high end remains upbeat. Before that, we get a decent earnings slate from Coca-Cola (KO), which one would assume to be decent based on Pepsi (PEP). United Parcel Service (UPS) is not expected to be good based on FedEx, but is the bad news priced in? JetBlue’s (JBLU) recent airlines have been extremely positive on demand outlook and then SAP (SAP), Xerox (XRX), and 3M (MMM). So far banks in Europe have beaten estimates with UBS Group (UBS) this morning ahead of estimates. Headwinds from a WhatsApp outage see Meta Platforms (META) falling in premarket trading. After the close, we will get earnings reports from Microsoft (MSFT) and Alphabet (GOOGL).

SPY forecast

On Monday we broke and closed above my pivot at $373 and now set another one at $379 with a small double-top formation. $373 remains key support, and $379 is the next pivot to keep the momentum going. $389 is then the target in my view. As mentioned previously, sentiment remains in favor of a rally as does positioning. Seasonality is not to be discounted. 

If we get through this week intact, I believe the rally should continue and even gain added strength. We had the bullish Relative Strength Index (RSI) divergence, and yields continue to look lower. 

SPY daily chart