Markets have largely exited the early month window when a low was possible. While a counter-trend snapback is possible at any time, the trend remains negative in the short run Both Treasuries and Equities show a possible time-based window for a turn in late August which could turn out to be the pivot for the much anticipated Low for Stocks and Bonds.
US Equity indices have continued lower at a time when a low was thought possible, and momentum has begun to worsen on a weekly basis as this decline has become a bit more broad-based. This prolongs the decline and means that lows are likely premature. A couple key points:
- This decline has proven very orderly and not too abrupt. SPX still is down just -3.5% from peaks made in late July. This hasn’t proven too technically damaging. However, weekly momentum has begun to wither, and weekly MACD is now negative for QQQ.
- Both SPX and QQQ have now broken uptrends from mid-March lows
- DeMark TD Buy Setups failed to cause much stabilization in this minor decline. The move under this week’s lows has kicked off a Countdown count. Based on DeMark methodology alone, it’s not unreasonable to expect a “13 Countdown” signal before US equities stabilize and turn higher.
- SPX nor QQQ are really that oversold based on daily RSI signals, though Summation index readings are getting down to levels that traditionally can allow for rallies to take place.
- Seasonality has proven to give us the correct signal about a sub-par August, and Sentiment hasn’t turned too bearish yet after optimistic readings peaked in late July.
- To the bulls credit, Junk yields have been largely tame, and have not begun to widen out dramatically, despite the escalation in Treasury yields.
- It remains correct to have a “Hawk-eye” like focus on Treasury yields, as the push back above 4.00% in both TNX and TYX directly coincided with Equities starting to accelerate lower. (My thinking has had to partly change here, as the discussion about yields peaking certainly has not played out as quickly as I thought possible. While I still believe that upside should prove minor for yields into September, a peak does not look to have happened and Treasury yields might hold up for another 1 or 2 weeks before rolling over)
My SPX 4350-4400 support target discussed in late July looks to be tested sooner than I thought would happen. I still view this as a short-term pullback, which should lead to a resumption of a rally. However, this might be delayed until after the Jackson Hole summit.
Daily SPX charts below show this trend violation which could result in SPX getting down between 4350-4400 before bottoming. The 50% retracement of the range from May lows along with a Gann target from July peaks lie near 4330 and this looks possible on this pullback.
Underneath, SPX has support from former resistance peaks which are now support near 4300 from last August. This also would coincide with a 38.2% Fibonacci retracement of the entire run-up from March lows.
China is breaking down now following a recent failed breakout
China’s breakdown of its triangle channel lows could likely lead to $25.50 in FXI 0.53% , the Ishares Large-Cap China ETF. However, I’m not expecting a washout to retest lows from last Fall.
China has quickly vowed to expand domestic consumption and try to support the private sector after its dismal economic data resulted in falling Equity prices. Its second interest rate cut since June has failed to result in much stabilization, and it’s thought that more serious evidence of stimulus might be necessary.
Technically speaking FXI and KWEB have proven to be disappointing technically following the recent high volume breakout failures. Both accelerated to new monthly highs before dramatically reversing.
This was an unusual development, and unfortunately doesn’t suggest an imminent low at hand. While I do suspect that a falling US Dollar should aid Emerging markets after one of the worst months in over five years’ time, it’s tough to fight this near-term trend until stabilization happens.
Technically it’s probably likely that China’s Equity weakness follows suit with US Equity weakness into late August before bottoming. However, this pullback requires patience before expecting immediate rallies out of Chinese Equities. If one’s timeframe is 3-5 months, then I continue to believe that FXI and KWEB are likely higher. However, if one’s timeframe is 1-2 weeks, the road proves much tougher and is unlikely to satisfy investors just yet.
FXI requires a move back over $28.50 for confidence of having bottomed. Similar levels for KWEB requires getting back over $29. Make no mistake, this thinking of China moving higher is not being abandoned, but merely postponed. One needs to see evidence of strength before adopting a bullish technical view following recent weakness. This might materialize in a few days. However, it’s far more likely that it takes another couple weeks before finding support.
US Dollar has broken out vs. the Japanese Yen. USDJPY technical projections suggest higher prices to test last Fall’s peaks.
This movement in USD/JPY has proven to be far stronger than what charts were relaying a month ago. While EURUSD and GBPUSD both look to be bottoming, Yen weakness looks to persist following USDJPY having exceeded former highs.
This appears like a five-wave wave higher from an Elliott perspective for 2023, which means two things. First, this move to new 2023 highs signals that higher prices are likely. USDJPY likely will rally back to 150-152. However, second, this looks to be the fifth and final wave of this year’s rally. Thus, upon reaching former peaks from 2022, there stands a good likelihood of an above-average selloff.
At present, the Yen is far weaker (Or seen on this chart conversely, Dollar/Yen is stronger) than EURUSD or GBPUSD which both look to be bottoming.
I expect the Japanese NIKKEI 225 index to have a bit more weakness before this also bottoms and should rally back to 35,000+.
10 Top Retail names to consider, technically speaking
Given that Consumer Discretionary along with Retail ETF (XRT) have both begun to turn lower, having some selectivity when buying Retail names makes prudent sense.
I had discussed XRT falling a bit more in last night’s report but growing closer to support.
My Top technical Retail names to consider:
- TJX -0.09% – TJX
- DKS 0.81% - Dick’s Sporting Goods
- URBN -0.87% - Urban Outfitters
- BBW 3.47% - Build a Bear Workshop
- GPI 1.24% - Group 1 Automotive
- WMT 0.88% - Wal-Mart
- SFM 1.47% - Sprouts Farmers Mkt
- COST 0.65% - Costco Wholesale
- CASY 0.97% - Caseys General Stores
- ORLY -1.08% - O’Reilly’s Automotive
XRT. The SPDR Retail ETF, likely could fall to $64 before finding support. This will require an advance back over $68 to expect immediate acceleration from Retail on an absolute basis. However, the names above look attractive technically speaking.
