Markets have entered a window for potential short-term trend change, but might very well prove short-lived and not undercut 4500 right away. 8/7-8/9 looks important for a possible turn. Ultimately, I expect an August decline down to 4350-4400 before SPX gets over 4650, making upside limited.
Recent stalling out in US Equities likely will result in upcoming consolidation. Yet, until SPX-4500 is broken, it’s tough putting too much faith in a larger correction getting underway just yet without any proof.
Monday brought about a continued strong lift in Energy which has quietly taken over as the best performing sector over the last month. Meanwhile, WTI Crude has lifted to highs not seen since April of this year, which lies less than $2 higher.
Overall, this stalling out in Equities looks to be important on a short-term basis only.
A pullback down to challenge 4560 looks probable over the next 1-3 days, and a break of that level should lead down to last week’s 4528 low.
However, until the uptrend from late May that intersects SPX-4500 is broken, it remains hard making a strong case for a larger decline. This has to do with weekly momentum still proving to be quite strong while broader institutional sentiment continuing to be neutral, not strongly bullish.
Bottom line, the month of August seems to present at least an initial window for a possible slowdown, and I’ll discuss what downside targets could be as more evidence starts to appear. There’s no saying that a minor pullback like the hourly chart below could play out before another rush at recent highs takes place.
Bank of Japan (BOJ) might cease bond buying given USDJPY spike
Daily charts of USDJPY raise an interesting question regarding how hard the Bank of Japan (BOJ) will try to keep interest rates below the 1% “hard-cap”, particularly if USDJPY continues to rise against their wishes?
Daily USDJPY charts show Monday’s gains to be part of a possible ABC-type correction (Elliott-wave analysis) but should be close to peaking out and turning back lower.
Overall, it’s unlikely in my view technically that Dollar-Yen rallies above 145. Thus, this minor bounce likely proves short-lived before rolling back over to breach recent lows.
While the appetite might not be present for US Treasuries as Japanese Govt. Bond yields start to escalate, US Yields still look more likely than not to move lower in the short run.
Bottom line, I am expecting a USDJPY decline back down to test and break 138 technically which likely could allow for a much larger decline to challenge January 2023 lows near 127.
Both US Dollar and US Treasury yields look likely to rollover in the days/weeks to come and likely spur on a further rally in precious and Base metals.
Crude surge helps XOP show steady outperformance, but looks to be nearing its first peak of this recent rally
The SPDR Oil and Gas Exploration and Production ETF has proven to be a steady outperformer over both Integrated Oil and Gas along with Services stocks over the past two months.
Energy’s breakout has been discussed in recent weeks, but now seems to be approaching its first area of possible resistance to this rally. This might materialize in the first week of August, and might hold XOP below $150 and allow for some near-term consolidation.
WTI Crude looks to challenge April 2023 highs, but this also might allow for a stalling out near-term upon reaching $83.50 (Generic WTI Crude Futures contract).
After gains in seven of the last nine weeks, XOP could also encounter resistance upon hitting the 61.8% retracement level of the pullback from last November 2022. This looks temporarily important, and Energy looks a bit stretched in the short run.
However, I would suspect any stall out or minor consolidation proves to be short-lived and should translate into an appealing risk/reward for Energy. The larger relative breakout in Energy vs SPX should mean that Energy remains a 2H 2023 outperformer, and any dips make Energy more attractive. See XOP chart below.
Copper breakout likely leads back to all-time highs
Copper’s breakout certainly is far more evident after Monday’s rise, which took COMEX Copper back up over $4.00. This has officially exceeded the downtrend from earlier this year and is considered a technically bullish move.
Much of this recent strength has dovetailed the rise in Chinese Equities and it’s thought that any China stimulus efforts that help to bolster China’s economy could be a direct benefit to Copper. as China remains the largest consumer of refined Copper.
Similar to Chinese Equity ETF’s like FXI and KWEB having broken out last week, this is now spreading to Copper.
Technically, this breakout has literally just begun, and should lift Copper up to $4.375 initally, and then eventually up to $5.00. One could consider stocks like Freeport McMoran (FCX) or Copper ETF’s like COPX (Global X Copper Miners ETF) as being ways which might correlate well with Copper futures on a continued rally.
