S&P 500 Sits at All-Time Highs - Here's the Trade

The S&P 500 has hit a record for seven sessions and is up for five straight weeks and five straight months. Here's how the charts look.
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While the Nasdaq notched new highs a few months ago, the S&P 500 took a little longer to catch up.

That makes sense, given how strong tech stocks, and in particular megacap tech stocks, have been in recent months. Those are names like Apple  (AAPL) - Get Report, Amazon  (AMZN) - Get Report and Microsoft  (MSFT) - Get Report, among many others.

While the S&P 500 also benefits from these stocks’ rise, it’s weighed down by struggling sectors like energy, financials and utilities, among others.

In any event, the S&P 500 has been on a hot streak. Last week the index notched its fifth straight weekly gain and eighth weekly advance in nine weeks. The one “down” week in that stretch? A 0.28% decline in mid-July.

At this writing on Monday the index is little changed, but if it holds the small advance it made earlier in the session, the index will have enjoyed its seventh straight record session

Lastly, barring a 7.2% collapse on Monday, the S&P 500 will notch its fifth straight monthly advance. It's now up 60% from the March low.

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Trading the S&P 500

Daily chart of the S&P 500.

Daily chart of the S&P 500.

Some investors trade e-mini futures on the S&P 500. Others trade index options on it. Yet others utilize the popular and very liquid SPDR S&P 500 Trust ETF  (SPY) - Get Report.

While most disciplined traders are in no rush to step in front of a runaway train - in other words, to short a monumental rally - many will also consider that the index seems to have run too far, too fast and may very well be stretched on valuation

I’m in no rush to become overly bearish. But in order to become a seller or pare down long positions, we need to first see some rotation to the downside, then follow through.

Right now, the daily-down trigger is 3,482. Whether that comes to fruition on Monday is unclear - and frankly somewhat irrelevant given that it’s just one day’s worth of action. A quick 50-point move lower would send the S&P 500 to the 10-day moving average and uptrend support (blue line).

That would help to work off some of the overbought condition the market is in, while also remaining technically intact for the bulls.

The healthiest price action bulls could see right now is a dip down to 3,394 — that’s roughly the prior all-time high from February. That would be a 116-point dip from Monday’s high, a correction of 3.3%.

A pullback of this size would give bulls an opportunity to buy the dip.

If 3,394 and the 20-day moving average fail to buoy the index, it could be heading for 3,300 and/or the 50-day moving average. At least upon the first test, one would expect this level to provide a bounce.

On the upside, keep an eye on the 3,677 mark. That’s the first extension to come into play from the March low to the February high.