The post-holiday selling in US Equities during this shortened week seems to be shaking the confidence of many investors despite the lack of any material decline for the stock market. VIX and Japanese yen did continue to trade higher along with yields rolling over sharply over the last few days, and this cross-asset volatility also coincided with minor weakness in Equities. As discussed last week, five sectors rose to make new all-time high monthly closes, and despite Technology waning a bit, there hasn’t been any material breakdown technically. Given that market breadth remains in good shape and Equal-weighted SPX has recently pushed back to new all-time high territory, I’m still inclined to expect a possible SPX rally back to new highs and don’t feel that this week’s slump represents any major selloff. If/when bullish price action happens into mid-month, there might be a technical case for weakening into October. However, I’m skeptical at this time that this early weak consolidation leads to any real broad-based market weakness.
Nothing changed technically given Thursday’s minor drawdown, and SPX successfully held above the key 5442-5463 area that was thought to be support for a pullback. As mentioned yesterday, “Only if 5383 is broken would I begin to harbor worries about a larger correction.”
Treasury yields, and the US Dollar began to turn back down again after Thursday’s ADP report, but it’s important to mention that despite Equity losses on Thursday, Technology managed to hold up in fairly resilient fashion. This directly follows yesterday’s relative signal for “Tech” (in last night’s report) that lows might be in after a difficult couple weeks.
While Financials and Healthcare both lost ground on Thursday (the 2nd and 3rd largest constituents within SPX) it remains difficult to get too negative on SPX given a lack of any technical damage.
Thus, my comments from yesterday are unchanged: (For now, prices still likely should stabilize over the last two trading days of this week and turn higher into mid-month back to new all-time highs. Such a development would mirror the cycle composite which calls for higher prices into 9/17.)
As I wrote in Flash Insights (the intra-day reports made available to all Fundstrat and FS Insight clients) “Equities very well might have bottomed, as the early weakness to undercut prior lows of the last couple days proved very short-lived and has now recouped this area.
On hourly charts the area from 5508-5512 marked intra-day lows from Wednesday into yesterday and now has been exceeded. I expect this likely can lead higher and should help SPX move up to test and exceed yesterday’s intra-day peaks of 5557 which was important. There remain questions as to whether this rally will get back to highs right away, or result in additional consolidation, but given the buy signal on Technology yesterday, I join Tom Lee in the optimism about a bounce tomorrow post NFP numbers and expect a move above 5600 at a minimum. This hourly chart helps to provide some context for SPX and its intra-day reversal back higher.”
S&P 500 Futures
For emphasis, I’ll also include the warning signs from yesterday for those who might have overlooked and/or would like to re-read, stated below:
Warning signs which likely would coincide with our seasonal Fall correction
Many of the warning signs on this list below have not occurred yet, and as such, I don’t believe that stock indices are all that vulnerable despite being in the bearish month of September.
If/when these start to resurface into mid-to-late September, then I’ll certainly pay attention.
- SPX, QQQ, DJIA and IWM all turn down to break August lows. At present, markets remain churning in consolidation within 1% of all-time highs (^SPX 0.24% ) even after the minor hiccup in Technology in the past week.
- Technology breaks pivot area/support from April-August
- Intermediate-term market breadth starts to roll over meaningfully. At present, more than 75% of all stocks are above their respective 200-day moving averages. Coppock curve along with percentage of stocks within 20% of 52-week highs has shown no meaningful deterioration.
- Evidence of a sharp rally in Treasury yields and US Dollar could be important and a temporary negative. The decline over the last 4-5 months in both DXY and TNX has directly coincided with a big rally in risk assets. If the Dollar starts to back up meaningfully, this might correlate with stocks losing ground. (At present, USDJPY is still pulling back and Treasury yields have declined precipitously in recent days, and still look to move lower.)
- Sentiment growing more bullish would be a negative. The last month of rally in US indices since the 8/5/24 lows directly coincided with sentiment starting to grow more optimistic. AAII Bulls/Bears has expanded to show two straight weeks of above 50% Bulls, while Fear and Greed also shows readings having moved to “greed”. However, the last few days could be causing this to change a bit. The Equity Put/call ratio has been bouncing sharply lately coinciding with the outsized move in VVIX (VIX of the VIX) and at 0.73, is largely mid-range, not too bullish nor bearish.
- Cycles show a possible short-term rally into mid-September, near this month’s FOMC meeting before a late month decline gets underway which would gel with seasonality trends. If a decline starts to take hold, then a 50-61% decline to the rally from early August might materialize. At present, I’m inclined to believe that August lows should hold.
- Short-term market breadth starts to show multiple days of negative breadth on rallies into mid-September; Conversely, if this week’s minor decline starts to happen with much larger negative breadth of 5/1 or greater. (Short-term concern, but one which normally can happen near a market peak.)
- If USDJPY breaks 140 and evidence of Carry-trade unwinding begins again in larger fashion, in a way that might spook other asset classes, such as Treasury yields which begin to decline in a quicker fashion than lately.
- If High Yield bonds start to show much greater evidence of deterioration, as thus far, most High Yield corporates have held up quite well vs. Investment grade corporates.
- If the recent strength in other non-Technology groups starts to fade meaningfully, (specifically Financials and Healthcare, which are #2 and #3 within SPX by capitalization and just hit new all-time monthly highs) this would likely be a concern for markets.
Overall, these listed above are but a few things that I normally look for, outside of just actual price and momentum-based deterioration. At present, the rebound from August lows has been fairly robust and specifically given the broad-based move in many sectors back to new all-time highs, it remains difficult to have many worries just yet. But if cycles, sentiment, seasonality and actual sector weakness start to indicate a larger decline might be upon us, I’ll certainly start to address it.
Gold looks excellent and move to new highs looks to be underway
Friday’s Gold rally comes on the heels of a shockingly low ADP number Thursday morning. This seems to have kicked off a big move in the precious metals which helped Silver actually outperform Gold.
In the short run, I feel that Gold has begun its push back to new all-time highs during this time of bullish Fall seasonality.
However, given that Gold has advanced as the US Dollar and Treasury yields have declined, any signs of yields stabilizing into September’s FOMC meeting and turning higher might result in Gold selling off.
Over the next few weeks, gold looks bullish and should push back to new highs. However, upon reaching 2650-2750, there might be some stalling out in price if/when TNX gets down under 3.60% and begins to stabilize and bounce.
Overall, my intermediate-term technical thinking on Gold and Silver coincides with bullish expectations of higher prices into 2025. However, I don’t suspect this rally will prove uninterrupted, and likely will depend on a continuing decline in Real rates.
At present, today’s rally to multi-day highs (9/5) looks important and should serve as the technical catalyst for a push back to new all-time highs.
CFDs on Gold
Gold positioning getting more bullish, but not at extremes
Gold’s rally this year certainly hasn’t gone unnoticed, and its gains have directly coincided with bullish positioning starting to return to the metal after a period where bearish positioning picked up from 2020 into 2022.
While current CFTC non-commercial longs haven’t yet reached 2020 peaks, this very well might occur if Gold pushes back to 2650-2750 over the next month.
I expect that any Gold rally into late September might result in a stalling out and reversal. However, pullbacks should make this attractive for rallies into next year.
Natural gas looks to be turning up more sharply following a successful retest of prior lows
I suspect that Natural Gas has bottomed for the short run, and gains into October could be likely which help United States Natural Gas Fund LP (UNG -0.01% ) advance to test $15, with additional targets near $17.
These comments are following up on my discussion a few weeks ago on UNG -0.01% , when I discussed that the cyclical path for Natural Gas could be higher into October before turning back down.
Given that Natural Gas is quite volatile, I feel like identifying key areas for this UNG chart is critical for success. At this point, those levels are $15 and $17 on the upside. Conversely, any move back under $13 would postpone a bullish thesis, a this would invite a retest of August lows.
At present, I feel that Natural gas makes sense as one of the few commodities which has appeal at current levels, and longs are favored into October at a minimum, with an outside chance of rallying into November before reversing back down.
US National Gas Fund
Tesla’s minor breakout likely paves the way for gains back to July highs
Despite market weakness in recent days, TSLA has begun to show promising signs of turning back higher, technically speaking.
Wednesday’s advance above $220 helped to break the downtrend from July and helped spur on a very constructive follow-through move for the stock on Thursday (9/5/24).
Volume rose to the highest levels since July which helped to confirm the recent strength, and Thursday’s move also managed to exceed the peak from early August at $228.22. This is a bullish development, in my view, and should help the stock close its gap from July just above $245.
Additionally, while 245 has minor importance, I suspect TSLA can push higher to test the more important $265 level which I mentioned in my YouTube webcast with Herbert Ong. This level was retested and held back in July. However, if/when this area is tested again, I suspect it will give way, kicking off a meaningful rally back to all-time highs.
Cycles for TSLA which I showed last week indicated that an upward bias is preferred, and the composite moves higher into October before peaking. Whether or not TSLA kicks off a “Buy the Rumor, sell the News” type advance into TSLA’s important Robotaxi event in October is currently unclear.
However, the stock has definitely begun to exert some above-average relative strength this week which looks promising at a time when Equities have begun to stall out.
Overall, I remain quite constructive on TSLA -3.53% , and expect higher prices back to $265 initially without much technical resistance.
TSLA
