Fractional loss this week represents only the third weekly loss out of the last four-and-one-half months for SPX and NASDAQ, while Value Line’s Friday loss prevented this from reaching new multi-month highs. Both the US Dollar and US Treasury yields have shown some partial weakness in the last couple weeks, which have been arguably helpful to commodities and Emerging markets. Overall, a broadening out in US Equity markets has been happening in a stealth manner in recent weeks, and now XLF 1.17% has pushed up to former all-time highs along with Equal-weighted Healthcare in the last week. Bottom line, this past week’s fractional losses don’t signal any technical damage to SPX and it’s still expected that further gains above 5200 are likely in SPX next couple weeks.
A few important points following this week’s minor consolidation in US Equities:
-Trends remain upward sloping with no evidence of trend damage in recent weeks, nor excessive negative momentum divergence that would signal technical concern.
-Technology has not shown evidence of peaking, despite some sideways trading since last month. Equal-weighted Technology ETF (RYT) was still the top performing Sector ETF of the 11 major Equal-weighted sectors this past week, returning +3.7`%.
-Sectors like Industrials, Healthcare, Financials and Consumer Discretionary all “came alive” in recent months to help provide a broad-based rally for Equities, and all four of these sectors have outperformed Technology in recent weeks.
-Short-term cycles largely push higher into April, despite the potential for some minor short-term weakness starting near 3/20-22.
-DeMark indicators remain premature towards signaling any kind of meaningful exhaustion
-March seasonality typically has been more positive than February seasonality, and given no evidence of the recent uptrend deteriorating, it’s difficult to expect that March won’t also prove to be positive.
-Small cap ETF’s like the Russell 2000 ETF (IWM 0.15% ) broke out last week to the highest levels in nearly two years, while the Ishares Russell Mid-cap ETF (IWR 0.36% ) is closing in on all-time high territory. (Note, IWR 0.36% has not yet broken out to new all-time highs while S&P Mid-cap ETF MDY 0.29% has officially accomplished this.)
-Defensive strength has begun to re-emerge across S&P sectors and this will be something to watch carefully into mid-to-late March.
While I’m watching carefully to see if the defensive strength leads to a breakout in sectors like Utilities, REITS and/or Staples along with evidence of cyclical weakness into April and/or signs of recently strong sectors like Technology, or Financials falling by the wayside, at present the most important technical tool will be concentrating on the uptrend from late October’s lows. As can be seen below, this is very much intact.
S&P 500 Index
Will Mid-caps and Small-caps join Large-caps back at New All-time highs? Mid-caps have grown closer
The breakout in late 2023 of the Russell Mid-cap ETF to the highest levels since 2022 certainly helped to jump-start Mid-cap performance, which has been better than Small-cap performance but certainly has lagged Large-caps.
Yet prices are now nearing all-time high territory, as seen by IWR 0.36% getting closer to peaks made back in November 2021.
Overall, it’s likely that IWR tests this level ahead of any major setback. However, it is likely that this former peak at $85.55 could hold on a retest initially.
The key takeaway is that while this recent stock market rally has proven quite strong and has been positive in SPX for four straight months, a move back to new all-time highs for Mid-caps and for Small-cap indices could help this to grow even stronger and eliminate all divergences, in my view. At present, this has not happened.
Thus, keeping a close eye on Mid-cap ETF as it approaches all-time highs and watching the Small-cap IWM as it nears all-time highs will be important to bolster an even stronger stock market rally in the weeks to come.
iShares Russell Mid-Cap ETF
Mid-cap performance this year has been not as dominant by a few names as either Large-caps nor Small-caps
Below is the performance for the Russell Mid-cap index for the month of February. As can be seen, roughly the top 10 stocks contributed about 25% of last month’s performance.
While this contained some stellar performance by names like PLTR -0.43% and/or CEG 0.54% , and COIN -2.32% , this didn’t dominate performance to the extent seen in the Russell Small-cap index, nor did it compare to the “Magnificent 7” performance within the SPX.
Top 20Russell Mid-cap Index constituents sorted by CTG to Index Return in February
Utilities strength as well as other areas of defensiveness, need to be watched carefully for evidence of strengthening
Over the past week we’ve seen Consumer Staples (“Staples”) break out to new multi-month highs in absolute terms along with near breakouts in both the REITS and also Staples which have been strengthening steadily over the last five weeks.
One development which often is worth watching is the start of outperformance by Defensive sectors which can normally precede some consolidation in the broader stock market indices.
This past week Utilities proved to be the second-best performing sector of the week, on both a cap-weighted and Equal-weighted basis, showing more than +2.84% gains (RYU)
While Defensive breakouts on an absolute basis can be an important positive as markets start to strengthen, it’s also worth watching out for times when Defensive groups start to outperform the SPX as stock index gauges are rising.
As of this past week, the RYU (Equal-weighted Utilities ETF from Invesco) has moved to multi-week highs vs. the RSP 0.44% (Equal-weighted S&P 500) and looks likely to strengthen further in the weeks to come.
Note, at present, sectors like REITS, Staples and Utilities all lie in relative downtrends vs. SPX that have been present for more than a year, technically speaking.
Below is the Equal-weighted Utilities ETF which would break out of its lengthy downtrend since late 2022 with a weekly close above $56. Seeing evidence of Defensive groups starting to outperform sectors like Technology, Financials and Industrials would be something to watch for carefully.
Invesco Equal Weight Utilities ETF
