Financials and Energy strength are encouraging for SPX rally

Trend bullish- Expect rally up to SPX 4325 into end of week before possible minor stallout; Pullbacks should be buyable when they occur for additional strength in June.

Wednesday’s minor pullback in Technology doesn’t do much to reverse the current bull trend, despite QQQ-0.67%  having fallen by -1.5%.   SPX showed losses of just -0.33% while DJIA was actually positive, with stocks like CAT-0.11% , CVX0.75% , BA0.01% , and GS-0.20%  all higher by more than 2% on the day.

While many might view NASDAQ decline as being a short-term negative, the broad-based advance in US Stock indices continued Wednesday.   DJ Transportation Average showed a very sharp rally to multi-day highs which helped Industrials.

Furthermore, Energy showed compelling signs of trying to bottom out with Exploration and Production stocks having rallied sharply following a WTI Crude rally of $4 in the last three of five trading sessions.

Finally, the Financials rally in recent days also looks to have positively contributed to the recent broadening out in the US stock market rally, and this also looks to continue in June.

Overall, Wednesday’s price action largely proved to be a stark contrast what’s been seen in recent weeks, but a one-day period of mean reversion looks healthy given Technology having consolidated while Cyclicals gained ground.

Bottom line, SPX should find strong support at 4150-4200 before pushing back to test highs from last August 2022.  Given the broadening out of the rally in the past week, I’m less likely to view 4325 as being meaningful for the month of June as a whole.

As weekly SPX charts show below, momentum is positively sloped and not overbought.  While 4325 might hold on the first retest into next week, it’s expected that prices push over these levels up to 4386, or even 4484 without too much trouble.

Financials breakout has extended; Trend short-term bullish

One very encouraging area of sector rotation in recent weeks concerns the gains back into Financials.

Financials has continued to extend higher in the last few weeks, and this week’s push above $32.65 in XLF0.43%  is thought to be a positive in allowing Financials to trend higher this month.

Berkshire Hathaway has pushed back to the highest levels in more than a year, while MCO-0.22% , MMC2.08% , JPM0.68% , CBOE0.31% , BRO0.63% , and ICE0.18%  are all technically attractive within Financials, and all these stocks lie within 10% of 52-week highs.

Overall upside targets lie at $34.35-$34.60 which should prove to be strong resistance on gains.  This lines up with the 61.8% Fibonacci area of resistance along with a 100% alternative wave projection of the initial rally from March lows.

Energy stocks take a much needed first step higher following recent bounce in Crude 

While Energy has been a laggard over the last few months, this group has slowly but surely begun to show some evidence of stabilization.

Specifically, the SPDR S&P Oil and Gas Exploration and Production (E&P) ETF, XOP, has broken out back above downtrends that have been in place since mid-November 2022.  Volume has been above-average this whole week and this strength looks positive and likely helps XOP push to technical targets at $138, then $143.

While more strength is needed in WTI Crude to suggest lows for Q2 are in place, this is a necessary first step higher, and sub-sectors that are tied to Crude have strengthened sharply in recent days.

While it’s right to still be selective within Energy, this particular part of Energy, the (E&P) sector, looks to strengthen.  OIH and XLE are of lesser attractiveness, but could also participate as Energy starts to show even more strength.

Apple’s cycle composite looks to potentially peak by late June

While many are attempting to call tops in AAPL-0.57%  following just a minor reversal this week, the breakout back to new highs coupled with a lack of upside exhaustion based on DeMark-based signals can likely help this stock make further headway into late June.

I recomputed the AAPL daily and weekly cycles again from the Foundation of the Study of Cycles, and both the 80-day trading day cycle (which mirrors the SPX) along with larger composite I employ with several other longer-term cycles (based on harmonicity to the 80-day trading day cycle) both trend higher this month.

This cycle composite shown below focuses on some of the most accurate cycles historically which have marked peaks and troughs in AAPL based on signal strength and Bartel score.  While the phasing can and does change over time, these shorter-term cycles often can provide some insight as to what to expect based on cycles.

Following two prior peaks and troughs which have been roughly in line with prior turns, the next peak seems to occur in the final week of June.  If this cycle continues according to plan, this would allow for weakness into mid-August before another rally.

Interestingly enough, postponing a selloff in AAPL until late June/early July would directly line up with when some of the weekly DeMark TD Combo signals might begin to align with “13 Countdown” signals (exhaustion upside trend).

At present, minor pullbacks this week should prove short-lived in this scenario and should push back to all-time highs.  This might allow for AAPL to rally up to my aforementioned technical target detailed yesterday of $190 or potentially $197.  However, at present, a meaningful peak in AAPL looks premature based on lack of trend deterioration, bullish cycles, and lack of DeMark exhaustion.

(Note, this pink line represents amplitude of the current trend.  This does not suggest that AAPL would need to decline substantially back to prior lows from early this year.  The change of trend is more important than magnitude).