Value Line’s gradual lift shows why worry about SPX being overbought or overvalued is likely misplaced

ATTENTION: As I am out of town, I will unfortunately not be able to write a technical report Thursday (3/14) or Friday (3/15) this week.

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 overbought, there remain precious little other evidence with regards to frothy speculation to excessive valuation measures that would warrant a major selloff.  Powell’s recent dovishness likely won’t change too dramatically despite a second “hot” CPI reading, and it appears like bounces in US Dollar and Treasury yields could prove short-lived before weakness back to new monthly lows into this Summer.  Rallies up to SPX-5250-5300 look possible ahead of a possible late March pullback into April.  However, without any evidence of this, it pays to wait for signs of weakening breadth and/or momentum before expecting a selloff of any sort.

Wednesday’s trading proved to be nearly the complete opposite of what was shown in Tuesday’s trading.  While Technology fell more than 1% to cause SPX and QQQ 2.13%  to finish negative, the broader market fared much better.  Eight sectors finished positive on an Equal-weighted basis.

Small and mid-caps gained more ground than Large-caps, and Treasury yields showed some slight gains in trading.  Sectors like Energy and Materials proved to be the strongest of any of the 11 major sectors and rising commodity prices helped to spur on gains in commodity-based stocks.

Overall, I feel that a push higher is likely technically speaking to SPX 5250-5300 over the next week before any evidence of stalling out gets underway. 

However, one important point to make concerns the degree that the broader market is just trying to push higher following its weekly high close at the highest levels since Spring 2022.

The chart below showcases the Value Line Geometric index, which contains 1700 Equal-weighted stocks.  Thus, while most fret about the US Stock market being overconcentrated, or overbought or overvalued, it’s important to see that the broader market has literally just started to push back to multi-year highs.  (Yes, a move back to new all-time highs already happened with RSP 0.75%  (Invesco’s Equal-weighted S&P 500 ETF))

Furthermore, when viewing our 26% SPX rally over the last 19 weeks in Equal-weighted terms incorporating a much larger grouping of stocks, we see that this rally isn’t nearly as overbought as one might suspect.

Bottom line, stock indices could certainly keep going at a time when some investors have begun to make excuses for reasons to not participate.   This breakout in Value Line’s index makes me constructive and doesn’t show me technically why US Stock indices are vulnerable.

Value Line Geometric Index

Copper’s breakout should help FCX and SCCO push higher

Simply stated, the potential breakout in COMEX Copper discussed in last week’s report along with Chinese Equity ETF’s has happened this week.

Copper has advanced above $4/lb. (COMEX) which paves the way for an advance up to the high $4’s back to test all-time highs.

Stocks like Southern Copper (SCCO 2.11% ) look quite attractive technically following the breakout above a lengthy base which started back in 2021.

Flat bases like SCCO has produced over the last three years have taken the form of a large Reverse Head and Shoulders pattern which was just resolved higher on this week’s breakout.

Higher prices look likely up to $110-$120 in the short run, and it’s important to put the sudden near-term overbought conditions in the context of the larger bullish breakout on weekly and monthly charts.

Overall, SCCO looks bullish here technically and I expect further gains in the weeks and months ahead.

Southern Copper

Silver starting to show evidence of accelerating to catch-up with Gold’s push back to new all-time highs

While Gold remains the more attractive within the Precious metal space vs. Silver technically when viewing commodities, Silver has shown some impressive relative strength this week.

The weekly chart of front month Silver futures shows the sharp three day rally this week having carried Silver up to levels just below key resistance, based on its 2+ year resistance.

Any daily close above $26 likely should produce some upward acceleration in Silver, and likely carry prices back to challenge all-time highs into this Summer.

The key for Silver investors who are trying to understand the correct level to pay attention to is simply to utilize last December’s 2023 peaks.  Any success in closing above last December’s highs should help Silver accelerate up to new technical highs given the constriction of this trading range over the last year.

However, until Silver can achieve a range breakout, it’s not wrong to still consider Gold the more attractive of the two precious metals, and expect intermediate-term outperformance.

Silver Futures

SMCI technical review- Still attractive technically

I thought a review of Super Micro Computer’s current technical state might be in order given the degree of parabolic rise this has produced in recent weeks.

A few key technical points are worth reiterating:

1. Despite the stock having churned a bit over the last couple weeks, there’s been no evidence of SMCI peaking out, based on meaningful technical deterioration in price that would violate its current uptrend.
2. Wave structure looks to show a five-wave impulsive pattern from late February which could be in its final move higher (of the short-term rally from late February only) and might find temporary resistance between 1300-1400 before showing some consolidation into April.
3. Despite short-term signs of negative momentum divergence per momentum gauges like RSI, there hasn’t been a similar degree of divergence in MACD.
4. SMCI has now advanced 11 straight weeks since December 2023, yet has shown no weekly closes that have undercut the prior lows on a weekly close.  (Such a development is typically a minimum requirement towards expecting a larger selloff could be starting)
5. Managing risk in an extended name can be tricky and much depends on an investors risk tolerance.  Those who managed to get involved between $250-$400 might have different risk parameters than those who purchased recently.  (My own rule of thumb is that incorporating a 10-day moving average and waiting until this is breached on a close and/or breaks the current uptrend might be prudent) 
6. Technically I don’t find fault with owning a parabolic name provided one has an exit plan if price turns down sufficiently to violate an investor’s own risk parameters.

Overall, it seems like another push back towards new all-time highs should happen technically over the next 1-2 weeks before SMCI 2.64%  starts to encounter resistance.  However, the extent of any selloff might prove minor in scope and not do much technical damage.  As shown below, it would take a move down under $1000 to violate the current trend.   Even if that were to happen over the last month, if the shape of the correction takes a three-wave decline and not five waves, than a move back to new highs would be likely. 

Super Micro Computers Equity