Bullish breakout should drive SPX to 4060

Tuesday produced nearly a textbook breakout which not only exceeded late June and early July highs in $SPX, but also successfully exceeded 3-4 month downtrends for $SPX and $DJIA.  Seven of the 11 S&P Select SPDR ETF’s were higher by more than 3%, and volume was nearly 10/1 bullish on NYSE and NASDAQ, producing a “90% Up day” in volume.  Hourly charts show this breakout above the two former peaks of the recent one-month consolidation, which likely drives $SPX higher to 4050-60 near-term before some backing and filling into the final week of July.  However, the odds of a breakdown to new lows are growing slimmer by the minute, and I’m no longer confident that markets need to pull back to new low territory under 3636.  While sentiment and cycles had predicted a bottoming process and lows for US stocks between June and July, it seems that structural progress is now occurring, and breadth expansion could be finally beginning, which had been lacking on previous rally attempts. 

Many investors continue to pay greater attention to the fears of recession and FOMC’s plans to hike 75bps vs. 100bps and largely are ignoring a very large rally happening in Technology along with the recent drop in Inflation expectations, both which seem important.

Initial upside SPX targets are based on the following:

-An alternate extension of the initial rally off the June 16^th lows targets 4031-4040.

-A Fibonacci 38.2% retracement of the March-June decline targets 4023.

-Some Gann-based projections off the June 16^th low targets 4040-4065.

SPX breakout of downtrend from late March looks important

It’s important to view daily charts of $SPX to see precisely what’s happened based on Tuesday’s progress.  While weekly breakouts will mean far more than daily price movement, this does look like a positive and significant development technically in the short run. As has been discussed, two prior highs, as well as the larger multi-month downtrend were successfully exceeded on Tuesday.   Markets produced broad-based participation with the majority of $SPX GICS Level 1 groups up more than 3%.  That’s certainly not something that has been seen in recent weeks. The one drawback might concern the huge overbalance in volume into advancing issues, and $TRIN (Arms index) finished down under 0.40.  However, it looks right to be long for additional follow-through this week into Thursday’s ECB meeting/end of week and look to buy all weakness. 

In the bigger scheme of things, the true battleground will be found above near SPX-4200.  This represented early June 2022 peaks as well as late February/March prior lows in $SPX.   If this level is exceeded, this will truly be the structural “Line in the Sand” that cannot be exceeded without turning trends bullish.   Near-term I’m willing to play for 4040 into end of week, and we’ll see the extent of the possible backing and filling and what participates into July’s FOMC meeting.  One should expect upside follow-through, and then look to buy dips on weakness into next week.

Small-caps look to be slowly turning back higher, and ratios of $IWM to $SPX are showing initial signs of breaking out  

In the last few days, we’ve seen the ratio of $IWM to $SPY turn higher fairly aggressively.  This has broken downtrends in this relative relationship between Small-caps and Large-Caps (using these benchmark ETF gauges) and should translate into better performance for Small-Caps in the weeks and months to come.

Note, this daily price action ideally needs to be confirmed by this breakout holding into end of week for weekly chart purposes.  Weekly breakouts tend to have a much higher degree of success than just a 1-2 day breakout attempt.

Exceeding $180 for $IWM would indeed confirm the same breakout that occurred in $SPX and $DJIA on Tuesday, and this should help drive some acceleration and better relative strength into September for Small-caps.

Bitcoin surge makes an intermediate-term bottom more likely

Bitcoin’s breakout today gives some added confidence that lows to this decline might finally be in place. Following nearly a month of sideways consolidation along the lows, Tuesday’s gains in BTCUSD have not only exceeded prior monthly highs but have also surpassed a key downtrend that had held this downtrend intact since late March. Momentum is positively sloped near-term and not overbought, and near-term gains up to $25,230, then $28k look likely before any backing and filling. Overall, while monthly DeMark counts never quite gave the ideal entry, a second TD Sequential “13 Countdown” will be confirmed this Friday above 21,056, which is looking increasingly likely. Bottom line, it looks right to trust this breakout, expecting further gains in the weeks/months ahead at a time when sentiment and cycles are suggesting prices should start to push higher. Look to use any weakness down to $20.8k-22k to buy, expecting Tuesday’s gains results in near-term upward acceleration.