Nike/Retail reversal on Dollar, Yield gains looks important

Tuesday’s reversal happened according to plan, and S&P’s pullback back under Monday’s lows looks important and negative, which should result in a pullback to challenge/violate June lows.  Technology, Communication Services, and Consumer Discretionary underperformed sharply, with each group losing more than 2% on the day.  While Energy extended for its third straight day, this sector should be nearing trading resistance, and investors need to be prepared for a reversal into July.  Overall, I suspect that Tuesday’s sharp retail decline on NKE woes should be the technical catalyst for a move back to new lows.  Bounces into 7/4 holiday likely prove short-lived and result in weakness into 2^nd, or 3^rd week of July ahead of the FOMC meeting.   Specifically, 7/10 would equate to a 38.2% Time retracement of the prior rally from 3/2020 into 11/2021 for quite a few US indices and sectors that peaked.  Here was the intra-day chart which happened directly as Tuesday’s pullback.  This rally looks complete as of Tuesday.

NY Composite Cycle looks to bottom in July and turn back higher

When plugging in the NY Composite prices to the Cycle Finder at Foundation for the Study of Cycles, we see that this is now projected to bottom in July, not June.   Both of my cycle methods had suggested a June/July bottom, but both seem to now focus on July for weakness.

This is interesting, because Treasury yields and also US Dollar both look to be turning back higher.  This act of pressing up has coincided with weakness in the US Equity market at other times in 2022 so far. 

Overall, while I do not expect SPX to violate 3505, the 50% retracement of the entire move up from March 2020 into January 2022, Tuesday’s sudden about-face likely does put prices in a position to test and likely break June lows.  Bottom line, any act of selling off into the 2^nd or 3^rd week of July likely turns out to be an excellent time to position long in Equity markets in my view.  One should be patient but recognize that sentiment has already gotten fairly bearish in short order, and this should provide a cushion on declines into next month.

US Dollar showing evidence of turning back higher 

Interestingly enough, the US Dollar rallied back to multi-day highs on Tuesday given weakness in the Yen and Pound Sterling.  I expect that DXY likely should push back to new monthly highs into July’s FOMC before reversing back lower.

While the US Dollar seems to be in “late innings” for its rally, the near-term projection should still result in this rallying.  Thus, Precious metals along with Industrials, Materials and Emerging Markets (EM) should all come under pressure in the weeks ahead.

Ultimately, a rolling over in US Dollar along with Yields next month should prove to be a technical catalyst for how risk assets can bottom out and rally.  At present, Tuesday’s DXY strength should be watched carefully, but is likely to result in DXY pushing higher over 106 in the next couple weeks.

WTI Crude also being eyed for evidence of stalling/reversal

Last week I discussed how WTI Crude might rally up to $112.50 near the 50% retracement of the weakness from mid-June peaks.  This now looks to have materialized, and I suspect it could be important to watch carefully as a broader commodity selloff on Dollar strength very well could coincide with Crude also peaking. 

Commodities remain under pressure near-term, both on an absolute and relative basis to SPX.  Thus, watching for evidence of $105.60 (this week’s lows) being broken would be the first real evidence that WTI Crude should result in another leg down to the high $80’s/Low 90’s which might coincide with Energy stocks weakening a bit more into July before finding support and rallying.

Above $112, meanwhile, (which might not be possible on this current upswing) would carry WTI Crude up to $115, which is a stronger area to sell.  At present, given the ongoing uptrend in Crude, while other commodities start to turn lower, keeping a close eye on Crude is important.

Will NKE’s downbeat forecast set the tone for further Retail woes?

NKE0.73%  downbeat forecast resulted in a sharp decline for many Retailers Tuesday, causing the S&P 500 Retailing index to close down -4.46%, one of the worst of any of the SPX GICS Level 2 groups.   Stocks like AMZN, MTCH, NKE, ETSY, and LOW all fell greater than 5% in trading Tuesday, while the S&P SPDR Retailing ETF (XRT) pulled back to new multi-day lows.

Near-term, Retailing is likely going to underperform sharply if this current pattern is any guide.  As daily charts show, its pattern from mid-May has formed a 4^th wave triangle pattern, with Tuesday 6/28’s decline likely kicking off a move down to new lows for the year.

With regards to the SPDR S&P Retail ETF (XRT) the level of $58.95 will be important for traders to keep an eye on, which represents 6/16 intra-day lows.  Under that level argues for weakness down to $55-$56.25 without too much trouble.   The larger area of support if/when $55 is broken doesn’t come in until $48, which would seem extreme.  Yet this should represent an excellent area to take a stab at buying dips into July.

Proprietary Technical Shorts to Consider–  I’ll list some names I feel are attractive technical shorts for the next month, as I feel that markets might temporarily dip down to new monthly lows.   My larger Stock list likely will be unveiled in the next month on evidence of stocks trying to bottom out.  At present, I like these stocks short, technically speaking:

XRT, NKE, PENN, WYNN, LVS, UAL, ALK, PLCE, BYND, PLNT, FOSL, GOOS, CCL, KSS, YETI, BBY, GRMN

I’ll be fine-tuning a list of both longs and shorts in the weeks ahead.