The recent stalling out in most US Equity indices over the last week hasn’t taken away from the appeal of the current rally from early August lows. A bullish advance back to new all-time highs is still expected into mid-September ahead of any seasonal Fall correction. The Equal-weighted SPX has already pushed back to new all-time high territory coinciding with the breakdown in the US Dollar and Treasury yields, and Small-caps have started to kick into gear once again. Furthermore, market breadth remains constructive and sentiment is not yet bullish enough to mark a larger market peak. Cycles show strength into mid-September in both Equities and Treasuries before a selloff takes hold, and sectors like Financials and Consumer Discretionary have been instrumental in serving as a “tailwind” for Equity gains at a time when Technology has been a bit wobbly. Overall, unless NVDA, and by extension, Technology, starts to roll over in bigger fashion it looks right to stay bullish.
NVDA’s earnings failed to exceed the highest Sales estimates, though the after-market reaction as of 5pm EST proved fairly muted ahead of the conference call. My technical take is the lack of a meaningful decline in the after-market could lead to a rebound once Jensen Huang addresses earnings numbers on the conference call. Without making any kind of deep-dive into the numbers, it’s insightful that NVDA beat on Revenues and sales, and announced a stock buyback, yet the stock merely fell marginally in after-market trading.
Looking back at Wednesday’s -0.60% SPX decline, this failed to do much damage ahead of NVDA 2.08% earnings, and Technology proved to be the only major sector out of 11 which fell more than 1% in trading. Three sectors were higher on the day: Financials, Utilities and Healthcare. Much will depend on the ability of NVDA to trade higher on Thursday for Technology and the broader market to begin rebounding sharply back to new highs. Technically speaking, given a muted reaction to earnings, I feel like such a move should get underway this week into end of month.
SPY weekly DeMark analysis suggests another possible three weeks of upside progress before a Stalling out
For those that utilize DeMark tools, it’s important to relay that weekly charts continue to be quite constructive and have not shown evidence of counter-trend exhaustion that would argue that US Equities could be peaking out.
While there was some evidence of upside exhaustion back in late June heading into July, this has since been stopped out, and SPY might rally into seasonal time of importance in mid-September ahead of a possible stalling out.
Overall, I’ll monitor this as SPY progresses, but the time in mid-September would line up with a few cycle composite projections which show the possibility of strength into September expiration ahead of a seasonal slide into October.
S&P 500
Healthcare looks quite appealing with RSPH “knocking on the door” of all-time highs
Healthcare has proven to be a pleasant surprise in recent months, following its seasonal time of strength from June into July now showing some follow-through higher into August.
Indeed, 6 of the top 10 SPX performers today within SPX are all Healthcare related: PODD -0.82% , BIO 1.46% , BMY 1.63% , GILD 1.26% , VRTX -1.35% , and VTRS -0.17% . This sector has grown in appeal over the last couple months after a lackluster 1H 2024 and we’ve begun to see some very attractive basing patterns in XBI, IBB along with XHS and IHI that make this sector one to expect continued outperformance at a time when many remain solely focused on Technology.
Given that Healthcare is the 2nd highest weighted Sector within SPX behind Technology, seeing strength in this sector is very constructive for the broader market and provides a “perhaps unnoticeable” tailwind.
The large-cap Sector SPDR Healthcare ETF (XLV -0.03% ) broke back out to new all-time highs last month, but Invesco’s Equal-weighted Healthcare ETF (RYH) requires simply a move above $32.14 (from Fall 2021) before this would exceed a large three-year base that should help Healthcare continue to show above-average relative strength in the weeks ahead.
Overall, Healthcare looks quite bullish here technically given that Equal-weighted Healthcare is on the verge of its own breakout. I feel like this adds to the appeal of US stock indices given Healthcare’s large weight with a possible breakout happening in the days ahead.
S&P 500 Equal Weight Health Care
Healthcare Services starting to turn higher vs. Medical Devices and should be an area to favor within Healthcare
When breaking down the subsector relationships in Healthcare, the ratio chart of XHS -0.12% (SPDR S&P Healthcare Services ETF) which includes stocks like DVA -2.24% , CAH -0.11% , CYH -1.69% , and ACHC -3.38% , has officially broken out of lengthy multi-year basing patterns vs. IHI -0.26% (Ishares US Medical Devices ETF) which includes stocks like ISRG 0.67% , RMD 0.05% , LIVN 2.21% , and DXCM 1.67% .
Given this turn higher to break a long-standing downtrend in this ratio, XHS is thought to likely show better outperformance in the weeks and months ahead.
SPDR S&P Healthcare Services ETF vs Ishares US Medical Devices ETF
Yield curve starts to dis-invert a bit more quickly
The 10’s-2’s curve (difference between the US 10-year Treasury Yield and the US-2-Year Treasury Note yield) has nearly gotten back to positive territory after a lengthy inversion.
In the short run, one can see the breakout in the yield curve which then retested the area of its breakout before turning back higher this past week.
In Wednesday’s trading alone, 2-Year yields fell 4 basis points (b.p.) while the 10-Year yields were largely flat.
This has caused some steepening in this formerly flat curve and the near-term technical situation makes a move back to positive territory likely.
I expect a move back to positive territory for the yield curve and feel that the short-end of the curve should continue to move lower at a quicker pace than 10 and 30-year Treasury yields.
However, it looks right to still be bullish on Treasuries even on the long end for another rally into mid-September (pullback in yields).
US Sell 2 YR & Buy 10 Year Bond Yield Spread
