Trend bullish- Expect rally up to SPX 4515-25 initially in the short run, while QQQ likely to reach 375-6 before possible stalling out; At present, near-term trends remain bullish
Wednesday’s below expected Core CPI reading proved to be a great technical catalyst for Treasuries to turn back higher sharply. 2-Year yields cracked meaningful uptrends, while 10’s 30’s and 5’s (Belly of the curve) saw rates also plunge following Wednesday’s report.
This drove US Equity markets up sharply at a time when many were questioning whether June highs could be exceeded. Large-cap Technology’s (Tech) snapback was quite constructive for QQQ in particular which outperformed SPX by around 50 basis points.
Materials and Utilities led in trading, and the latter’s strength was somewhat surprising given the current risk-on trend extending further. A shift to defensive sectors remains early to call, but will be something which could take on importance if this continues into July expiration.
At present, it’s seen as a positive that the rally in Industrials and Discretionary have now been joined by Financials, Materials and Energy. Tech’s recent stalling out over the last few weeks looks to have been temporary, and Tech should push back to new monthly highs into July expiration before any larger stalling out.
Overall, trends have been bullish and unwavering, and momentum became a bit more positive on Wednesday’s push back to new monthly highs. While some negatives could materialize on a further rally into late next week, I’ll hold off on putting too much weight on these or mentioning presently as most of these remain premature.
SPX daily charts show the breakout back above June peaks, which should extend up to 4515-25 into next week with dips likely finding support near Tuesday’s intra-day highs pre-Wednesday’s Gap near SPX-4444. Overall, trends and momentum suggest further strength into next week.
Two-Year Yields peaking out and pullbacks likely into August
The Treasury rally (Yield breakdown) happened very quickly in recent days and accelerated post Wednesday’s soft CPI print.
This looks important and bearish for Treasury yields across the curve, and likely results in further weakness in yields in the weeks ahead.
2-Year yields, shown below, cracked a two-month uptrend following their plunge down under last week’s lows.
US 10-Year yields look likely to fall to 3.80%, but a close under this level would argue for a possible full retracement of the entire rally in yields since May.
Trends and momentum look to be turning down for bond yields given more evidence of weak economic data. This directly follows the decline in the US Dollar mentioned in recent weeks, and 10-Yr Real yields also look to have found meaningful resistance near March peaks.
Short-term support levels for 2-year yields lies at 4.38%, then 4.21%. Under 4.20% would lead to a pullback to 3.65% which isn’t expected right away but signifies an important level.
Silver has broken out of near-term resistance and has broken out relative to Gold
The Metals look to be regaining their luster after Wednesday’s plunge in real yields reignited this group yet again.
Copper, Gold and Silver all turned up sharply, and Materials proved to be one of the best performing groups in Wednesday’s trading.
Technically, this looks like an important move for both precious and base metals and should lead the metals higher in the weeks and months to come.
Ratio charts of the Ishares Silver Trust ETF(SLV) vs. the Ishares Gold Trust ETF (GLD -0.09% ) broke out of a meaningful downtrend which should allow for Silver to outperform Gold in the weeks to come.
I expect that SLV should rally from $22.15 back up to $24, and over this level should result in SLV moving up to $27.
Silver Mining stocks and ETF’s that coincide with Silver, such as SILJ 0.63% (ETFMG Prime Junior Silver Miners ETF) look attractive technically as do Gold mining Stock ETF’s like GDX 0.41% (VanEck Gold Miners ETF).
Overall, it’s thought that Materials should strengthen further given the drop in real rates and the falling US Dollar and subsequent boost in Metals should be the driving force behind this move.
SOX breakout bodes well for a rally up to 3850-4000 before SOX hits resistance
SOX, the Philadelphia Semiconductor Index, broke out of its triangle pattern Wednesday, which likely drive the SOX up sharply into next week before much resistance.
Semiconductors should be favored for outperformance over other parts of Technology like Software, or Tech Hardware, and continue to show excellent signs of technical strength.
While some minor slowing in momentum happened in this group over the last week, Wednesday’s rally should help to put the upward trending movement back on track.
With two days left in the week, SOX is set to make the best weekly close since early 2022.
Former all-time highs lie just above $4000 and are thought to be a formidable area of resistance.
However, Wednesdays’ gains should jumpstart this part of Technology, and it’s thought that higher prices are likely for “Semi” stocks.
