Equities have shown evidence of turning back higher to end the week following confirmed breakouts in AAPL along with initial evidence of both Treasury yields and US Dollar turning lower. While the Equal-weighted S&P has some work to do to regain its former bullish structure, the comeback in Healthcare and Industrials lately has been constructive. SPX and QQQ both closed back above areas of short-term resistance, and Small & Mid-cap indices also managed to clear recent highs, which is bullish. Overall, I expect that SPX has begun its trek back to late March highs at 5264.85 and should exceed this en route to 5400.
To summarize the week, it’s likely that our recent pullback from late March is complete given the start of Treasuries and Equities to turn higher along with a meaningful pullback in the US Dollar. The FOMC’s plans to accelerate its QT tapering along with a weaker Jobs report helped to counter the recent hawkish narrative that had driven rates a bit too high.
Technology enjoyed its best day in more than two months on Friday which should have kicked off a push in Technology which could resume its rally back to new highs following a multi-month consolidation.
A key question is whether traditional May seasonality would prevent markets from enjoying a bullish rally during the first couple weeks of May, which tend to be far inferior than the back half of May. However, as discussed yesterday, traditional May seasonality in Election years is typically much better than April and its median return of +1.1% since 1950 has more than doubled April’s normal performance.
I suspect that Friday’s (5/3) breakouts in SPX and QQQ should allow markets to push straight higher without the need for further consolidation. See the SPX and QQQ charts below.
First, SPX managed to exceed last week’s highs near 5123. This helps to exceed the 50% retracement level which had held the first rally off the lows, as well as officially surpass the minor downtrend from late March. While there could be minor resistance near 5191-5200, I don’t suspect this will prove too meaningful, and a push up to 5265 should be underway.
S&P 500
QQQ has achieved a similar breakout which should drive price back to recent highs
Similar to SPX, QQQ has also managed to surpass a key area of resistance formed by last week’s highs along with numerous prior lows in the last two months.
This is a constructive development, driven by AAPL 1.57% ’s bullish move post-earnings by closing Friday back above $180. AAPL’s rally today occurred on the highest volume in nearly two years. That’s a very positive technical sign coinciding with the break of AAPL’s downtrend.
I expect that QQQ should push higher to test 449 with only minor resistance coming in at 443.
Invesco QQQ Trust
Technology looks to be turning higher after holding pivot support
While the Technology underperformance over the last few months seemed severe to many investors, it failed to break down sufficiently to think that Technology was falling out of favor.
The relative chart below of Equal-weighted Technology (RYT) vs. Equal-weighted ^SPX 0.54% looks to have turned back higher below after consolidating down to test pivot levels of the past few years.
This area was precisely where Technology broke out in relative terms in Q3 of 2023. Thus, some backing and filling to test this level shouldn’t have been a concern to intermediate-term investors.
Until/unless this area is violated (near April lows in RSPT/RSP), I believe Technology stands an excellent chance of resuming its leadership, right as interest rates begin their descent into Summer 2024.
Overall, Technology remains a technical Overweight, and its recent consolidation combined with the last two weeks of stabilization and reversal makes this sector look quite attractive as a risk/reward for the months ahead.
Equal Weighted Technology vs. Equal Weighted S&P 500
“The Peak might be in” for Treasury yields
Given the reluctance of Chair Powell to give in to the hawkish narrative, combined with the weaker than expected Jobs report and accelerated QT tapering plan, I feel it’s likely that Treasury yields have begun their descent for 2024.
While more needs to be done trend-wise to argue that the uptrend from February has run its course, my thinking is based on a combination of Treasury sentiment, cycles, Elliott-wave analysis and positioning.
TNX managed to hold above 4.50% by Friday’s close, but a break under 4.35% will now be important to argue that a move down to new 2024 lows is underway.
I expect that 4.00% should happen sooner than 5.00% for the 10-Year Treasury yield, and expect that a drop in yields in the months ahead should help Equities extend their rally from May into mid-June and ultimately into the bearish month of August.
I’ll discuss yields more when ^TNX -0.96% - 4.35% is broken, and can project a timeframe and projected bottom for yields which might happen sometime in late Summer this year initially. As I discussed last week, my cycle composite on daily charts goes lower into August while the weekly cycle projection shows a decline into early 2025. At present, extending duration on Treasuries looks proper for fixed income Portfolio managers as rates should have kicked off their descent into Summer 2024.
US Government Bonds 10 YR Yield
