Trend bullish- Expect rally up to SPX 4515-25, and above to near 4550-65 initially into next Friday, while QQQ’s move above 376 might help this reach 380. No evidence of any trend deterioration and right to stay positive barring more warning signs.
Thursday’s acceleration has lifted SPX up to near my targeted resistance while QQQ has surpassed 376. While it might be tempting for investors to sell, there hasn’t been much evidence of any technical deterioration, and my key cycle date doesn’t materialize until next Friday 7/21. (Even this should be a short-term reversal only, and I’ll discuss this in more detail as it nears)
The broadening out in the US markets has proven impressive, and the last week seems to have rewarded investors who have been patient in sticking with laggard groups like Energy, and Financials, not to mention Chinese Equities, and many Emerging markets.
It cant be overemphasized what a large decline has been seen in the US Dollar over the past week along with a huge drop in Treasury yields that occurred very quickly, directly following some sub-par US economic data. This has spearheaded the big surge in precious and base metals, and Materials sector has caught up quickly. The Dollar’s washout certainly seems like a big positive for risk assets, and doesn’t seem complete. (DXY can likely fall to 97.50)
I view the broadening out in this market rally across sectors as quite positive, though am wary of pressing long bets heading into the next two months, which seasonally have proven negative.
If/when Bank earnings come in better then expected, this could truly serve as the catalyst for lifting sentiment to very optimistic levels, just as DeMark “sells” materialize and cycles start to dip. However, in absence of any true defensive trading (and Wednesday’s big move up in Utilities looked to have been a one-day affair only, with Technology now ripping back higher) it’s right to stay invested barring breaks of ongoing uptrends with the plan of buying dips into August.
Value Line’s Geometric index shows an Equal-weighted index of over 1500 names, which provides a bit of a reality check to what the US stock market really looks like. While this surge in SPX and QQQ has proven impressive, the broader rally looks to have just gotten started two months ago.
I expect Value Line to rally up to near 600 before stalling out (near the green horizontal resistance line) However, eventually this should be exceeded, paving the way for additional gains later this year.
Momentum is positively sloped and NOT overbought, as many sectors like Financials and Energy have just recently started to “kick into gear”.
US 10-year Yields have dropped faster than expected
I touched briefly yesterday on the broad-based Treasury rally (Yield breakdown) which has happened across the curve. This has happened very quickly in recent days which has a couple of important implications.
First, the severity of this quick drop has taken a toll on momentum, and this likely results in this yield drop continuing over the next month. (This lines up with seasonally bullish period for Treasuries, so yields should continue to drop).
However, hourly momentum has gotten oversold just as yields have arguably broken the ongoing uptrend line. While it’s right to expect some “backing and filling” this move likely brings yields across the curve much lower over the next month, and one cannot rule out TNX getting back to 3.25%, or even 3.0% before some stabilization.
In the bigger scheme of things, I do not expect yields to remain lower indefinitely, as most weekly and monthly studies suggest the path of least resistance is higher for yields over the next couple years. However, cycles show yields moving lower into 2024 before a rally, and my near-term technical projection is for a retest of former monthly lows for the 10-year yield. This decline looks to be underway. Thus, mild bounces likely represent a chance to position long in TLT or IEF, expecting additional pullbacks in yields.
Banks relative to S&P are improving; Yet, much work needs to be done
Heading into Bank earnings, which get underway in earnest on Friday, Banks look to be sharping up technically speaking. My key takeaway for this group is as follows:
Banks likely push up into late July and then potentially also from mid-August into September. However, I do not expect an intermediate-term, larger rally in Banks. Short-term trends are bullish for further gains. However, the extent of the drop into March lows still makes rallies seem tentative and early to trust on a medium-term basis.
As shown below, the relative chart of the KBE -0.45% (KBW Banks index) relative to the RSP -0.02% (Equal-weighted S&P 500 looks to be carving out a bullish base.
This week’s gains are positive in a pattern that looks very much like a reverse Head and Shoulders pattern. However, barring proof of this breaking out above the neckline, this rally could prove short-term only.
Bottom line, I like having long exposure in Financials heading into Bank earnings. I expect that Banks likely outperform in the weeks to come. However, larger challenges remain before making the claim that a bigger rally awaits. My technical rating on Financials was dropped to an underweight a few months ago, and I do not see the need to change this at this time.
Ethereum and Bitcoin breakouts should jumpstart a push higher into end of July
Don’t look now, but Cryptocurrencies are finally showing signs of participating in the rally in risk assets following nearly three weeks of sideways consolidation.
Bitcoin and Ethereum had largely moved sideways since 6/21/23, but this looks to be changing for the better, as of Thursday’s close (7/13/23) Ethereum and Bitcoin both broke out to new monthly highs, and should experience some upward acceleration in prices into end of month.
This is particularly positive for Ethereum, which also showed excellent relative strength vs. Bitcoin in recent days. ETHBTC began to turn up sharply this week, and this favors better relative strength out of ETHUSD into end of month.
Short-term upside targets lie near $2400 for ETHUSD while $36-$37k looks important for BTCUSD. While 7/21 has importance possibly for all risk assets as a turn date, I don’t expect much selling in cryptocurrencies until 8/1. That’s a time when some of the shorter-term cycles start to turn back lower in Bitcoin, and I’ll discuss my cycle composites for BTCUSD once this gets closer.
At present, long positions are appealing and higher prices look likely over the next couple weeks.
(Note, I don’t usually write much on Cryptocurrencies but occasionally select technically attractive charts to discuss in my own reports. The Crypto team at FS Insight led by Sean Farrell provides daily commentary and I consider this essential reading for those who do not subscribe, but who are interested in Cryptocurrencies.)
