US equities diverge

The US dollar will continue to strengthen, commodity prices will stay under pressure and bifurcated US equity performance will remain an ongoing theme, according to Ari Wald, Technical Analyst at Oppenheimer.

Wald says an ominous combination of narrowing participation (chart 1) and negative seasonal trends (chart 2) argues for a bull market correction. As such, he expects commodity-exposed stocks to trade lower while the positive effects of lower commodity prices will keep the balance of the market afloat.

His top sell ideas include Energy, Materials and Industrials (which have all experienced fresh breakdowns) as well as Technology Hardware & Equipment and Utilities, whereas he recommends staying long Health Care, Consumer Discretionary, Software  & Services, Capital Markets / Banks, and Food & Staples Retailing. Overall, given the expectation of countertrend weakness, Wald believes market-neutral strategies are appropriate, such as going long Consumer Discretionary against a short position in Energy.

In terms of S&P 500 levels, Wald sees 2130 as resistance and 2040 as support, followed by 1970.

See chart 1 and chart 2.