Key points to reiterate into CPI

Catch me on Fox Business News with Maria Bartiromo, Tuesday morning (3/12) at 8:20 am EST – 9 am, discussing technical trends along with CPI.

I continue to see the US stock market as being attractive, technically speaking, and do not feel sufficient risk is there to warrant a selloff at this time. While momentum gauges like RSI have gotten technically overbought, those are not great metrics with which to view the market.  Despite the churning in parts of Large-cap Technology in recent weeks, other sectors have rallied to pick up the slack.  It remains to be seen whether last week’s poor Jobs report signaled the start of a slowdown in economic data or whether CPI comes in “hot” for a second month in a row.  Technically speaking, I agree with Tom Lee that any volatility should lead to buying opportunities back to new high territory and it’s still expected that further gains above 5200 are likely in SPX next couple weeks which might reach 5250-5300 ahead of a possible period of consolidation.

A few key thoughts into CPI

1. US Stock Market has broadened out in recent months, and it’s certainly not just a Tech dominated rally anymore.    Large-cap growth has faltered ever so slightly..  ¼ of Growth was down last month, but Growth still held up and beat Value  +3.8% vs. +3.7%
2. 4 straight positive months during the WINTER is normally a rarity but has happened 16 times in the last 90 years  (Nov, Dec, Jan and Feb all positive) and the average and Median return from March into year-end is 15% with NO down years in history.
3. No real concerns thus far about valuation are present-   NDX 100 Forward P/E of 26 might be slightly above the 10-yr avg of 21, but it’s below levels from 2020/2021 Post covid recovery era along with Dot com bubble peaks in 99/00 which saw P/E north of 70.
4. No real speculation that’s showing up as “indiscriminate buying.”   Both AAPL and GOOGL, not to mention TSLA, have lagged sharply lately, so there’s been some rotation which has happened even within Technology that has not been problematic.
5. This broad-based rally into Financials, Healthcare, and Industrials in Dec/Jan has given way to a bit more of a defensive stance as of recent weeks-   Materials, Utilities, REITs have outperformed along with Energy.  However, there’s been no concrete evidence thus far to think these groups are beginning larger uptrends vs. SPX.
6. Breadth has largely still held up quite well- As of last Friday’s close, we still have more than 75% of ALL SPX names above their 20, 50 and 200-day moving averages (m.a.). 
7. Sentiment has slowly but surely gotten more optimistic, but yet none of the traditional metrics of excessive optimism are present, and no real complacency given the domination of a few key stocks which have generated most of the performance.
8. Seasonally speaking, March tends to be a very good month during election years, but we’ll see if decelerating momentum in Economic data (last week’s Jobs report) has any effect to dent valuations.
9. It’s worth seeing whether the Jobs miss last week meant that this February reading was a “One-Off” or that another month of hot readings are possible?  As Tom Lee has written, CPI might come in hot given the “residual seasonality” and the change in weighting for Owners Equivalent Rent in January to add more weighting to “Single Family Homes”.  (We also know that there was a weird divergence between OER and Rent of Primary resident back in February and this divergence is unlikely to persist.  Also, there’s only so much that Car insurance can continue to spike 20%, and some stalling out in this is likely as well.)
10. Can XLF getting up near prior highs along with Mid-cap ETFs  (Russell Midcap) lead market to stall out?   Thus far we have insufficient proof of this, but both Financials along with the Mid-cap ETF are both nearing former highs, so these areas might indeed stall out in the short run.

Overall, I do not feel it merits trying to scale back on longs, nor pick a top, based on technical, as uptrends and momentum are intact and positive, and there HAVEN’T been the warning signs that typically suggest this rally is nearing its end.   ANY 5-7% Spring decline would arguably be a buying opportunity for higher prices.

SPX’s daily chart shows the ongoing symmetrical uptrend that’s been in place for the last few months.  While February’s CPI resulted in a quick 100 point decline, this found support quickly and rebounded back to highs.  I expect that Tuesday’s data shows similar resilience and do not expect a move under 5000.

S&P 500 Index

China looks to be on the verge of breaking out

Chinese Equities look to be on the verge of a breakout of the seven-month downtrend extending from peaks last July.   The price of Copper has slowly but surely begun to rebound as well as Gold having hit new all-time highs (the latter of which China’s central bank has been a major accumulator in recent months). 

What to watch for:  A move over $24.35 would constitute the first 5 wave rally off the lows in over a year for FXI 7.40% , the Ishares China Large cap ETF.  Thus, while resistance might come in near 25.50, any pullback likely down to 38.2% to 50% of the rally off February lows would make FXI quite attractive technically speaking.  Overall, I view a breakout as imminent for Chinese equities.

iShares China Large-Cap ETF

Copper might also follow China’s lead and break out

Copper prices are flirting with a breakout, and Elliott-wave interpretations of the recent pattern seems to agree that this is a distinct possibility this year.  As shown below, Copper produced a clean five-wave move higher and has consolidated in a three-wave decline before recent strength. 

As many might have suspected, Copper has risen lately as Chinese Equities have recovered.  While part of this recovery might have been on perception alone, any gains over $3.9420 in front month Copper futures would successfully break out of this entire pattern since last Summer. 

Furthermore, this would be bullish for a move up to the high $4’s, targeting $4.75-$5 in COMEX Copper.   Technically, I am bullish on Copper here and this would grow more bullish on a breakout of this consolidation pattern. 

For non-commodity future trading investors, one might look at Global X Copper Miners ETF (COPX 1.00% ) as a possible way to play a breakout which might coincide with the potential of an advance in Copper and/or Freeport McMoran FCX 0.87%  which at $40.43 might rise to the high 40’s and/or challenge early 2022 peaks just over $50.

Copper Futures