Trend still bullish – Expecting upcoming push back above SPX-4200 –No change on last week’s comments – Wave structure on a short-term basis remains constructive, and should lead SPX back up to eclipse 4200 potentially into 5/24-27 while QQQ hits 328. Only a decline back down under SPX-4112 would serve to postpone this rally.
Monday’s rebound in Regional banks looked particularly constructive as a reason why SPX could rally. This is quite helpful in driving the broader Financials sector, which remains the 3rd largest part of SPX. Charts in this report show reasons for optimism.
Small-cap underperformance vs. Mid-Cap and Large-Caps has been showing some mean reversion after a difficult few months from Small-Caps. Regional bank rallies should help to aid Small-cap outperformance.
Energy very well could be bottoming, as US plans to buy 3 million barrels for its Strategic Petroleum reserve. Monday’s gains looked constructive for Energy.
Technology made an impressive gain Monday which brought the Equal-weighted Technology ETF RYT up to the highest levels since mid-April. This looks like a temporary positive.
On an equal-weighted basis, sector performance was far stronger than on a cap-weighted basis, which tends to give dominance to the large-cap names. Specifically, none of the Sector SPDR S&P ETF’s rose more than 1%, while on an equal-weighted basis, SPX looked relatively stronger, with Technology and Materials performing better than any other sector. Meanwhile, Financials and Communication Services were close to registering +1.00% gains and also outperformed any of the large-cap dominated Sector SPDR ETF’s.
Overall, given all this bullish Sector strength in Monday’s trading, movement above 4154 looks more likely than an immediate break of downside support near SPX-4050. Such an advance should give way to a near-term test and breakout above 4200.
The upward sloping trendline connecting former peaks, combined with the horizontal line from last August 2022 peaks shows the more meaningful technical area of resistance, which should materialize near 4300. However, any daily close above 4235 would suggest that a possible short-term peak might materialize, specifically if this occurs between 5/17-5/24.
Short-term triangle pattern shows a narrowing pattern of lower highs and higher lows
The pattern in recent days highlights the chief area of interest for SPX direction. This lies at 4154 for SPX cash and near 4164 in front month S&P futures.
On the downside, 4111 is key for S&P Futures, while 4050 is important for SPX Cash. Breaks of either side should have importance in leading to follow-through after the choppy six weeks of consolidation.
Technology’s push to highest levels since mid-April looks temporarily bullish
Monday’s Technology gains helped the Equal-weighted Technology ETF by Invesco (RYT) reach the highest levels since 4/24/23.
This helped Technology outperform the broader market, and perform better than all other 10 Equal-weighted Sectors, with gains of +1.69% in Monday’s trading.
This proved to be twice as good as XLK, which rose just 0.83% on Monday 5/15/23.
ENPH, FFFIV, SEDG, CAN, CDW, IBM, MSI, IT all gained more than 1.50%, aiding Technology.
SPDR S&P Regional Banks ETF has achieved a minor upside breakout
Monday’s breakout of the minor downtrend from late April resulted in KRE hitting the highest levels on a close since 5/8/23.
This strength to multi-day closing highs directly contributed to Small-caps outperforming, and an oversold bounce in KRE and the broader banking sector looks likely.
While this could prove short-lived, it’s worth overweighting Banks on a 1-2 week basis for a bounce, and keeping a close eye on KRE which appears to have pulled back too far.
Rallies up to $40.67 looks initially likely, and gains above that would likely move to the mid-$40’s. This might appear difficult in the short run but is certainly an intermediate-term resistance level to keep in mind, which lines up near mid-April highs.
