Near-term and intermediate-term technical trends remain bullish for US Equities, and trends in the US Dollar and Treasury yields look to be turning back lower in a way that should result in weakness through September. Precious and industrial metals, along with Cryptocurrencies, are bullish, and Friday’s move is thought to have some follow-through higher over the next 1-2 weeks before some stalling out near 9/8-9/9.
Friday’s Jackson Hole speech resulted in a meaningful surge in risk assets across the board, with Equities, Treasuries, Cryptocurrencies, and Precious Metals all rallying sharply as the US Dollar index tanked. It was important to see the pickup in Small and mid-cap strength while both DJIA and Equal-weighted SPX moved back to new all-time highs.
I feel this leads SPX back up to 6550-6600 at this point, and it’s not wrong to say that intermediate-term trends, breadth, and momentum have improved as a result of Friday’s move.
While the seasonal concerns and Technology underperformance remain possible headwinds, market breadth and broad-based participation have improved this past week. Furthermore, the drop in the US Dollar should have bullish implications for emerging markets and commodities.
To have concern about any kind of fall selloff, ^SPX would require a move down under August lows near 6212.21, and this looks unlikely until mid-September. However, keeping a close eye on Technology looks imperative given the recent underperformance in Software, and it’s thought that NVDA earnings might serve as a necessary catalyst to help Technology get back on track.
(For now, I am expecting a push to $182-$184 ahead of earnings.)
As shown below, Friday’s post-Powell speech helped to drive the Equal-weighted ^SPX and DJIA 0.09% back to new high territory (Chart shown is of Invesco’s Equal-weighted S&P 500 ETF only ) This is a constructive move that gives some promise of a more broad-based rally starting to materialize and I expect some near-term follow-through higher for RSP -0.08% and DJIA 0.09% .
Invesco S&P 500 Weight ETF
US Dollar turned down sharply to arguably break the minor trend from July
I expect that the US Dollar is in the process of breaking down, and the Euro and Pound Sterling took the lead in turning higher, while the Japanese Yen still looks to be a work in progress technically, but it should also begin to lift in the weeks ahead.
Overall, I expect a move back to new 2025 lows for the US Dollar before some stabilization and a Q4 rally, but over the next month, the path of least resistance should be steadily lower for both DXY as well as US Treasury yields, with a bias of curve steepening.
U.S. Dollar Index
IWM trend should accelerate back up to $245 initially
The degree of outperformance and above-average low-to-high range in Friday’s rally is quite bullish for the Russell 2000 and gives the IWM -0.15% /SPY 0.22% chart a better chance of confirming monthly TD Sequential “buy” signals (13 Countdown) with one more week in the month of August.
As discussed in recent days on Flash insight and in notes this week, I expect Small-caps to outperform in the near-term, which directly ties into Chair Powell’s dovish bias today.
Until there is more evidence of NVDA 0.77% snapping back above $184 (if/when earnings come in better than expected next week) than Technology likely could lag performance a bit longer heading into September.
Thus, while many investors might expect QQQ 0.80% to be the preferred choice for alpha in the next few weeks, I prefer IWM -0.15% , expecting continued follow-through higher for Small-caps at a time when positioning (per CFTC Data – See CFF6TNCN index- Bloomberg) remains quite short.
From a contrarian perspective, this negative positioning looks quite positive towards creating a short-covering sharp rally in the next 1-2 weeks for IWM -0.15% .
iShares Russell 2000 ETF
Silver breakout should result in a push up to $41-$42 in Silver Futures, and Silver is preferred in the short run vs. Gold
Silver broke out officially of its multi-month triangle pattern today and continues to show better relative-strength than Gold in the short run, a bullish shift which began three months ago.
I expect that Spot Silver should reach $41-$42 and the iShares Silver ETF SLV 1.14% could push up to test and exceed mid-July’s $35.91 en route to $38 initially.
Moreover, the fact that China’s Equity market is also showing very good strength in the near-term, I expect this should translate into better performance for Silver, given China’s recent stimulus and ongoing status as the largest importer of refined Silver ore (based on 2023’s data).
iShares Silver Trust
Tesla stock looks to be on the verge of another breakout, given Friday’s rally
For TSLA -0.43% investors, this is the start of a coming technical breakout, in my view. Today’s move to 6-day highs exceeded the minor downtrend of the past week and volume expanded to the highest levels since 8/11.
I see this as a very promising 1-day advance that likely will carry this back to challenge and surpass the August peaks at 348.98, which represented the peak following the initial breakout from early August.
Overall, TSLA looks like an excellent risk/reward here and remains part of my UPTICKS list. I like owning and actually increasing position size on any break of August 13th highs at $348.98, which should help lift this above late May highs, and up to 420-427. This appears to be a very promising start to this rally today.
Tesla, Inc.
