Trend bullish- Uptrend has reached near-term targets; However, broadening out in US Stock market should allow for further gains into late June. Long exposure still looks correct, with consolidation making prices more technically attractive into next week
Overall, these past few weeks have strengthened the case for a 2H rally, not a selloff back down to the March lows. While prices are nearing overbought levels coinciding with a noticeable uptick in retail sentiment, there hasn’t been any evidence of deterioration in risk-on sectors.
Technology experienced a minor “settling” this past week while other sectors played “catch-up” This wasn’t thought to be bearish. Rather, this looks like a healthy sign of short-term rotation
As discussed in recent days, the strengthening of Industrials, Financials, and Consumer Discretionary are thought to be helpful towards why breadth has skyrocketed in the last three weeks. These are important sectors and should be joined by Healthcare within the next few weeks.
SPX briefly got above last August’s peaks of 4325 before settling at a small late-day close back under 4300. One cannot rule out some early weakness to kick off next week given the extent of the run-up in recent days. However, I am not expecting that 4231 is breached. The area of 4240-4270 should represent attractive support on near-term pullbacks.
Following any minor consolidation, it’s likely that SPX exceeds 4325 as this rally continues. I’ll discuss upside targets as SPX progresses higher in the back half of June. However, the key takeaway is that I am not considering 4325 anything more than minor resistance which shouldn’t prove too serious.
Emerging markets ETF (Ex-China) has just broken out
Emerging markets are back!! At least that’s what recent price action has been suggesting. While most remain concerned about the viability of China’s recovery, we’ve seen steady upward progress in recent weeks out of India, South Korea and much of the Latin American (LatAm) space.
The MSCI Emerging Market (Ex-China) ETF, or EXMC, broke out of what is widely considered to be a reverse Head and Shoulders pattern from last Spring. This is quite constructive, as Friday’s (6/9/23) close finished at the highest weekly closing price since last May.
Additional strength looks likely in EMXC up to $54 initially, and then $56 looks quite possible on this latest successful breakout. $56 lines up roughly at a 61.8% Fibonacci retracement level of the prior decline, and looks like an initial technical target for gains in the months to come.
EEM has broken out vs. the Global Developed markets (ex-US) ETF
Emerging markets have been rebounding quite nicely in recent weeks.
The ratio of the MSCI Emerging Markets ETF (EEM 0.42% ) vs. the Ishares Core MSCI Developed Markets (Ex-US) ETF, or IDEV 0.36% , just broke out of downtrends that have been intact since last Fall.
This looks like an interesting time to consider diversifying into some Emerging markets for those concerned about the extent of the runup in US Technology lately. (Though I personally expect Technology to lead throughout the 2H of 2023)
India, South Korea, and Mexico have been standouts lately and there’s been some comeback in Brazil along with Taiwan as well.
China, as I discussed earlier this week, seems to be nearing a key inflection point, and could start to show better performance as well in the weeks/months to come.
The key takeaway, is that for those who have been avoiding Emerging Markets (EM), it might be time to give this area a second look. The breakout of EEM to IDEV should allow for additional outperformance in Emerging markets vs. Developed markets (ex-US) and this might outperform even more once the US Dollar begins its descent.
Performance data backs up what breadth gauges have been telling us
When stripping out all the heavy weightings of high growth Technology stocks that make up the NY FANG index, we see that in Equal-weighted terms, the performance of Technology has still been impressive enough to beat all other Equal-weighted ETF”s over the last month.
RYT , Invesco’s Equal-weighted Technology ETF, has returned over 8.85% over the last month, which has outperformed the Equal-weighted S&P 500 ETF RSP 0.77% by over 700 basis points (bps)
Furthermore, this rally has been broad-based as Industrials, Financials, Energy and Communication Services have also shown much better relative strength than the Equal-weighted SPX.
While many bearish investors complain about the lack of breadth, it’s important to note that this has changed dramatically in recent weeks. The percentage of stocks trading over their 20-day moving average (m.a.) has skyrocketed from ~39% on 5/26/23 to over 71% on 6/9/23. That’s an impressive leap.
Furthermore, the percentage of SPX issues over the 50 and 200-day m.a. have also jumped to over 53% as of 6/9/23. While a broad-based recovery takes time, this seems to have marched higher quickly. I expect a further broadening out of this rally in the weeks to come heading into the end of 2Q.
