- SPX reversal post-FOMC leaves SPX very well positioned for further gains
- Energy looks to be showing more evidence in bottoming, both in WTI Crude and NG
- Following last year’s playbook, SPX could rally into mid-February, specifically Feb 17-19th
Tuesday’s roller-coaster about-face managed to recoup all of the early weakness after early selloffs held exactly where needed per the ongoing hourly uptrend.
This is a bullish development, setting up for yet another push higher above SPX-4200. It’s thought that this could create a possible short-term peak, if this were to happen into end of week, with ideal SPX targets at 4230-50.
Maximum resistance for February likely arrives near 4300, which is thought unlikely on this initial push up. Overall, any further rally should face some resistance once SPX arrives in overbought territory and requires possible consolidation during a difficult seasonal month.
US Treasury yields have pushed higher to important short-term resistance and it’s difficult to see TNX get immediately above 3.70%. Overall, I suspect yields should start to turn down in the days ahead.
Yet again, Technology strengthened over the last hour of the day and showed outperformance, along with Energy, which looks to be bottoming. Technology has continued to show near-term relative strength; however, I feel like other sectors like Energy and Healthcare might outperform Tech during the back-end of February.
Overall, I don’t suspect February will prove to offer a “straight-shot” linear advance back to last August’s highs. However, the near-term view remains positive, and it still looks early to expect any peak. Momentum remains positive, and not overbought in the near-term.
The area at 4100 will need to be still monitored, as this is important support for trading longs. However, it’s thought that another 60-90 points higher is possible in SPX, and that this happens this week before a stalling out. I’ll discuss the reasonings for “why” markets can stall upon reaching this upside target area.
Crude oil along with Natural Gas have given the first real price evidence of trying to bottom out
Following up on last week’s discussion, Energy looks compelling to overweight between February and May.
WTI Crude, along with Natural Gas, look to be bottoming in the near-term, and Tuesday’s above-average gains are thought to lead Energy higher in the days/weeks/months ahead.
Cycle composites on WTI Crude along with Natural Gas both show the potential for sharp gains in the weeks/months to come. Tuesday’s gains make it very possible that this is getting underway this week. More technical proof on gains to new weekly highs would be reason to have more conviction about this sector being a Q1-Q2 overweight.
Overall, as has been discussed, it’s right to consider the Refiners, Integrated Oils, or Oil Services names until WTI Crude can regain $85. At that time, it’s thought that Exploration and Production stocks could start to snap back.
One should consider Energy as a sector to use recent weakness to overweight, as its larger relative patterns vs. SPX look to be stabilizing and should allow for outperformance.
This breakout on hourly WTI Crude charts appears like the first meaningful downtrend line break going back since late January. Furthermore, Natural Gas front month contracts also moved to new multi-day highs. Both of these are supportive of higher prices.
Bounce in US Treasury yields likely to stall and reverse
Technically speaking the three-day bounce in TNX now looks to be approaching meaningful resistance. This is based on a combination of Ichimoku cloud resistance, along with ongoing downtrend lines.
Given that the ongoing correlation with yields and stocks remains quite negative, any pullback in yields, for whatever reason, argues for stocks to push higher.
It’s right to monitor rates in the days to come. However, I don’t anticipate an immediate push back over 3.80%. Thus, this minor Treasury correction/yield bounce should offer opportunity, as I expect yields to turn down into the month of March.
Treasury yield cycles look bearish into late March. This should coincide with yields pulling back further, and most bounces to translate into buying opportunities for Treasuries.
Any breach of 3.32% offers little to no support until 3.11% and then 3.000%, which is a huge psychological level.
If the 60-year lookback cycle has any relevance, then the back half of February could prove weak
Interestingly enough, when looking back at the same trajectory that was so successful as a possible trajectory guide for markets last year, namely the 60-year lookback period of 1962, the initial results have already been encouraging for this year.
While many consider interest rates, Fed policy and/or earnings as key drivers of how any given year can unfold, I’ve always utilized the lookback period of 60-years, or three cycles of 20-years, as having relevance towards how a year could possibly unfold.
While some might scoff at looking back at any period like this as to having relevance, this period was an integral part of the cycle composite that I utilized for my bearish forecast last year.
It’s worth pointing out that 10, 20, 30 and 60-year lookback periods, which form the basis for a decennial year forecast in a pre-election year like 2023, all show consolidation and/or weakness starting 2/5 at the earliest to 2/19 at the latest before pulling back into late February.
Given the wave structure of the current bounce from late December, a possible push up into mid-February could offer “the bears” their first window for expecting a possible stalling out in the Equity market. While I expect any pullback to prove brief and not too extreme before strengthening into mid-March, it’s worth keeping an eye on upon SPX moving up above 4225.
The lookback graph for 1963 shows strong January performance before a bit of faltering and then a push higher into February 19th. We’ll “cross this bridge” when we come to it. For now, further rallies are expected above SPX 4200, and we will discuss as we get closer.