Trend bullish- Expect that this week’s minor weakness is buyable into end of week for a push back to new monthly highs into mid-July. Under SPX-4300 represents the first sign of possible pullback, which looks premature at this time.
SPX’s late day rally prevented the four-day losing streak from taking hold which would have just been the third time this year, surprisingly enough. This snapback likely should help SPX claw back to new weekly highs, and a bullish stance remains preferred.
Specifically, this past week has brought about some weakness in the Regional banks, while concurrently boosting parts of Healthcare like Medical Devices and Pharmaceutical stocks.
Technology (Tech), meanwhile has fared the worst over the last five days, but this has directly followed a very steep run-up for Tech. Moreover, Tech stocks are still leading on a 1 month, 3-month and Year-to-Date (YTD) basis, and should continue to outperform into July.
Sentiment gauges have slowly begun to reflect some of the recent rally over the last few weeks. However, financial media and many investors are still quick to point out that QQQ -0.08% is now quite overbought on daily charts, and that we remain in a low volume environment where just a few stocks have led the way.
This kind of negativity speaks volumes to the fact that sentiment still isn’t all that giddy, to say the least. This doesn’t look to be a market where investors are showing signs of rampant speculation and meme-stock mania, buying call options “hand over fist” Overall, I view sentiment as having made a quick move back to “semi-bullish” coinciding with the broadening out in the markets in recent weeks. However, more needs to be done to weigh in that market sentiment has gotten exuberant.
Regional bank decline looks close to completion
Despite the recent selling pressure in Regional Banks in June, this pullback looks to be close to completion, and Regional banks might bottom on Friday 6/23, or Monday 6/26.
Specifically, DeMark-based counter-trend exhaustion is close to forming on relative ratios of KRE -0.47% to KBE -0.45% , the SPDR S&P Regional Banking ETF vs. the SPDR S&P Banks ETF.
Thus, while many feel like Banks might be topping, this doesn’t seem to be the case technically. Momentum based on commonly looked at indicators like MACD, just turned back to positive territory two weeks ago.
Weakness in KRE -0.47% should find support at $38.75-$39.35 within the next 1-2 days before this bottoms and starts to turn higher. Breaks of $37.75, while not expected, would postpone the rally and lead down to test $36.
Financials still look negative on an intermediate-term basis
While I expect near-term stabilization in the Financials sector, one can’t yet make a bullish case technically that this group will outperform in the back half of 2023.
Relative charts of RYF (Invesco’s equal-weighted Financials ETF) vs. RSP -0.02% , the Equal-weighted S&P index, have only shown minor signs of stabilizing after having pulled back to new multi-year lows.
While Insurance stocks and Investment Bank/Broker Dealer names might outperform over the next month on bounce in Financials, selectivity continues to be necessary in the Financials sector as a whole on an intermediate-term basis.
Rallies into July likely could represent a chance to expect an oversold bounce in Financials might show some resistance. At present, my view is that Financials rally into mid-to-late July technically before likely showing more meaningful consolidation between July and mid-August.
AAII data shows sentiment having risen, but still doesn’t appear to be at bullish extremes
AAII data has steadily risen from March 2023 lows and has now neared the highest levels since late 2021.
Bullish percentages outweigh bearish by roughly 15 percentage points as of Thursday 6/22’s reading.
However, it’s thought that this switch to bullish literally has just begun as of late May when the broader market began to show better breadth on better participation.
Overall, this hasn’t yet reached levels that would indicate concern from a contrarian perspective. However, on further evidence of rallies into July which produces bullish readings in excess of 30 percentage points over Bears, this would be nearing levels where investors will need to pay attention.
At present, I view sentiment as more mixed, not extremely bullish as some have stated.
