SPX stands a good chance of peaking out in the final days of July, with key turn dates possible this Friday, 7/21 and/or 7/24. At present, the trend is stretched but bullish and tough to call for a reversal without proof.
Markets continue to chug higher, and while US Equities pulled back from early highs, ^SPX 0.24% , QQQ 0.36% recorded positive closes with no evidence of any reversal.
Banks continue to make upside headway. However, this is expected to prove temporary and not the start of a large intermediate-term rally in the Financials sector.
Importantly, while SPX and QQQ have gotten short-term overbought based on traditional momentum indicators, it’s more difficult to make this case when studying Equal-weighted indices like RSP -0.11% or QQQE 0.47% .
Importantly, breadth has begun to show some divergence on the most recent push up into mid-July. Furthermore, weekly RSP -0.11% charts (Equal-weighted S&P 500) show prices above the higher Bollinger Band which has not expanded too dramatically.
Finally, it’s interesting to see that both RSP and NYSE Composite have pushed up to test levels near prior highs. As shown below, this gives a more concrete sign of possible resistance than what the SPX or QQQ might show at current levels. Both of these gauges have reached upside targets, but yet markets have shown little signs of reversal.
On one hand, pushing back to new all-time highs in MSFT -0.68% and AAPL 0.39% is certainly a positive with these stocks combining to represent more than 25% in QQQ.
My thoughts remain unchanged. US Equities are starting to appear like a high risk entry for those attempting to initiate new long positions. However, there hasn’t been signs of deterioration to justify making a tactical bearish call, except for one based on risk/reward.
I’m skeptical that ^SPX 0.24% climbs above 4600 in the short run, so SPX would seem to have limited upside heading into late July. However, it’s been difficult to turn too negative with heavy weighted stocks like AAPL and MSFT back at new highs.
NYSE Composite charts show prices up against February peaks which likely proves important in the days/weeks ahead. While a larger breakout can’t be ruled out in August, it seems unlikely right away given the preponderance of DeMark exhaustion, cyclical weakness starting next week, and minor overbought levels on many other indices. Sentiment also has gotten more optimistic on the most recent push higher. With July soon coming to a close, August stands out as a poor seasonal month for SPX in pre-election years going back since 1950. All of these reasons combine to argue for a possible stalling out. However, a stalling out is different than a meaningful selloff and there’s just no proof of that just yet.
Breadth has begun to diverge on SPX
As seen below on SPX charts showing the percentage of stocks above their 20, 50, and 200-day moving averages, there’s been some evidence of breadth not having followed the most recent push in SPX above 4500.
While trends and momentum remain intact (though momentum is also now diverging on daily SPX charts) it’s looking increasingly likely that SPX does in fact stall and likely reverse in the days ahead.
Optuma’s chart of SPX below shows that no prior peak in the last year was accompanied by negative divergence of SPX issues above their 20-day moving average at the peaks. Thus, this looks to be a potential warning heading into late July.
Solar Energy finally looks to be breaking out and making some headway
Given the recent downturn in the US Dollar along with yields retreating, we’ve seen Energy and WTI Crude start to turn higher a bit more quickly in recent weeks.
Solar Energy, however, has just given its own signal that it might be able to start working a bit better. The Solar Energy ETF, or TAN -0.52% , has just exceeded the downtrend going back since February, five months ago.
This looks interesting, and makes Solar Energy appealing to expect higher prices in the weeks and months to come. As loyal readers are aware, I’m always alert to when multi-month trendlines are broken, in either direction. This clearly looks constructive to me.
However, this is just a first step of the process of bottoming out. To truly overweight the sub-sector, Solar Energy requires a move back over $77. This would break the downtrend from last August which looks far more important.
Stocks like Enphase Energy (ENPH -2.61% ) and SolarEdge (SEDG -1.68% ) still require some work before becoming bullish in absolute terms. However, stocks like First Solar (FSLR -2.58% ) remain very attractive and are Overweights. Overall, this analysis is just highlighting the initial strength of a former lagging sub-group within Energy.
As the last couple years have demonstrated, however, it’s easier to own stocks or indices hitting new 52- week or all-time highs, than former laggards which look to be trying to break out of downtrends. Often this process proves time consuming, and patience is required.
Tesla likely hits resistance and might reverse lower in August
I thought it might be right to discuss TSLA -3.53% , since Tom Lee included in his Granny Shots list, but upon discussing stock technical, it was decided not to be included as a “Super Granny” this month.
Technically, this stock has made some meaningful progress, given its move back up into its former base which had been broken last October. This prior breakdown coincided with Elon Musk selling shares of TSLA and proved to be a dramatic downturn.
However, the act of reclaiming this consolidation, which occurred last month, TSLA has become more technically attractive on an intermediate-term basis.
Unfortunately for those who might be short-term oriented, TSLA has now risen up to the highs of its recent pattern, which arguably lies near $305-$315.
A few factors argue for weakness in August, namely, time cycles, near-term overbought conditions when price is nearing resistance, and counter-trend exhaustion signals based on DeMark indicators.
TSLA -3.53% seems close on all metrics, and should be in the process of stalling out and turning back lower in August, coinciding with a potential seasonally weak month.
While the fundamental picture of the company remains strong, and intermediate-term technical have improved, the near-term technicals suggest a high risk, poor risk/reward in trying to enter new positions with the stock just below $300. One should potentially wait until $250-$260 before considering TSLA, as the upside looks limited technically in the short run.
