Key Technical Takeaways into Nonfarm Payrolls Number Array ( [cookie] => a180f3-a10358-cb0e06-90fb41-3899a3 [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 1 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 23251 [user_id] => [reason] => Usage under limits [method] => ) 1 and can accesss 1

The four-day SPX rally has now quietly regained 5% just in the last three weeks, one of the longest uninterrupted rallies this year.  Near-term, prices are nearing key make-or-break levels that technically look likely to result in a stalling out/reversal in prices heading into next week.  This is expected technically given the lack of participation and/or breadth thrust seen by this recent bounce, illustrating that this rebound has not been nearly as broad-based as necessary.  Second, prices now lie near structural downtrends, and it’s thought that the recent outperformance out of Consumer Discretionary shouldn’t last if rates start to tick higher. 

Ultimately, I don’t expect SPX 4000 is going to be exceeded in July, and even 6/28 peaks at 3946 could prove challenging to surpass heading into Friday’s important Jobs number.  Any decline on Friday 7/8 or Monday 7/11 that violates 3738 has little support until June lows at 3636.87.  This also might be breached for a final pullback into July 22-July 29, a time that’s important cyclically and also lines up with July’s FOMC meeting.

Key Technical Takeaways heading into Non-Farm Payrolls  

1. In the short run, there are “problems” with thinking this recent bounce should extend much higher above SPX-4000 for the following reasons:
   1. The Structure of this bounce isn’t constructive from an Elliott perspective, with lots of overlapping waves
   2. The bounce has lacked any real breadth acceleration- i.e. Huge upside volume or Advance/Decline higher to confirm a broad-based rally
   3. Downtrends are still intact and until this changes, I do not expect SPX-3946 to be exceeded.
   4. Recent strength in cyclical groups like Consumer Discretionary and Communication Services looks unlikely to last.  These are very weak technical groups, and technical structure remains quite bearish in both.   Retail should move back to new lows
2. Treasury Yields are important to keep an eye on, and yields look to be turning up on schedule.  Given ongoing positive correlations with SPX it’s unlikely that stocks can buck the tide of rising yields, and Friday’s Payrolls number might serve as a negative catalyst. (THE DOWNTURN in yields led to GROWTH outperforming. Now this should reverse in the short run)

SECTORS TO FAVOR – Healthcare, Utilities, Staples. SECTORS TO AVOID: Discretionary, Financials, Industrials, Energy (For July only). The Sector performance shown above, ranked on a 1-week return for S&P SPDR Sector ETF’s and Equal-weighted ETF’s shows that most of the recent strength has come from groups like Discretionary, Communication Services and also Technology. All three groups were some of the hardest hit over the last three months. It’s unlikely that these groups will continue to lead higher in the near-term as Treasury yields push higher.

Conclusions

• Equities – Short-term bearish – Market indices might peak Friday
• Equities – Intermediate-term bullish – Stocks should be higher into September and into end of year
• Commodities likely weaken into late July – Avoid Energy, Metals, Grains
• Short Treasuries for a move back to new yield highs of 3.50-3.60 in TNX. Then yields likely roll over.
• US Dollar rally likely on its final legs (all this rate differential/Europe weaker, etc. already well built into price), but still should work higher into late July and then watch for Reversal

As has been discussed a bit in recent weeks, in the bigger scheme of things, the US Equity index downtrend from January/late March is starting to get a bit exhausted.  The pace of decline has clearly stalled a bit in recent weeks, and markets are now 5% higher since the 6/16/22 low.  Treasury yields, Breakevens, and commodities have all plummeted, and inflation worries have given way to recession fears/growth slowdown.  The fact that far fewer NASDAQ issues are at new 52-week lows is a constructive development overall.  Yet, this won’t prohibit possible weakness over the next 2-3 weeks.  Overall, it looks right to have a pessimistic view until downtrends are broken; yet it’s right to believe this selloff could be on its last legs given sentiment, cycles and Elliott-wave structure.  It looks right to buy any pullback of June lows between 3505-3600.

AAII data still shows pretty persistent bearishness

The latest data shouldn’t come as much of a surprise, as Percentage Bulls remains lower and under 25%, while the Percentage Bears is now over 50%.  Worries about the Russian/Ukraine war, inflation, and a stock market that’s down 25%+ have now given way to worries about a possible recession and growth concerns.

While data has been persistently negative in recent months (and this past week’s data hasn’t changed too much), I’m expecting that this gap between bears and bulls might widen even further if yields start to back up higher, resulting in Technology turning down.  Stay tuned.

Managed Care is yet another Healthcare sub-sector that looks appealing
While I’ve discussed Pharmaceutical and Biotech stocks quite a bit in recent weeks, it’s also worthwhile to pay attention to the Managed Care Group.

This particular index shown below highlights the S&P Managed Care Sub-Industry GICS Level 4 index.  This is comprised of UNH, ELV, MOH, HUM, and CNC.   Specifically, my favorite of these names is Humana, HUM -1.44% , given the large base breakout which happened in recent weeks.   UNH qualifies as a close second.

As shown below, this index managed to hold where it needed to on weakness into June and has bounced in recent weeks to break the minor downtrend from Spring peaks.  Heading into a bullish month for Healthcare like July, this looks like yet another key Sub-industry group to favor for outperformance in the days/weeks to come.