Please click HERE to view my appearance on Fox Business News this afternoon.
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 price action has been a bit more subdued in recent weeks following momentum gauges having gotten overbought, there remain precious little other evidence with regards to frothy speculation to excessive valuation measures that would warrant a major selloff. Rallies up to SPX-5350-5400 look likely into mid-April before a consolidation gets underway. Both Treasury yields and US Dollar should be starting to roll over.
US Equity markets have exhibited a bit of a slowdown in recent days, but both QQQ and SPX have successfully held up quite well on their respective retracements as compared to the former upswing from 3/15 into 3/21, a sharp four day gain. As mentioned yesterday, which holds true today, the minor pullback has given back less than 50% of the prior gain in the same period of time. Bottom line, this lack of material weakness is bullish and should translate into sharp gains as the month of April gets underway.
Heading into end of quarter, with one full trading day left in the month and quarter, SPX is higher by 3% over the last month, which follows a recent string of four consecutive straight months of gains.
This past quarter very well could represent the 12th best 1st Quarter since 1950 with one trading day remaining. Looking back since 1950, the top 24 instances of the best 1st quarter returns have never led to a down year. Only 1987 of the top 15 1st quarterly returns proved negative from March into year-end. However, as we remember, the year as a whole still turned in positive gains.
As discussed last month, the median return after a positive string of four straight winter months of November-February has been 15% from March into year-end. This string has happened 16 times in the last 90 years and has an uninterrupted track record of gains from March into year-end.
I’ll share this chart of QQQ on a daily basis to illustrate what I discussed above. Following a sharp four-day period of gains from 3/15-3/21, the last five days of consolidation have barely retraced 50% of this prior lift.
On an intermediate-term basis, this uptrend speaks for itself and has proven resilient on minor dips in recent months. Bottom line, more will be needed to shake the confidence of the “Bulls” heading into April, in my view.
QQQ ETF
Sub-sector thoughts of some of 1Q’s best performers
Semiconductors
Semiconductors have proven to be far and away the best performing group of the first quarter 2024 with one trading day left in the month and quarter.
The S&P Semiconductor and Semiconductor Equipment index has beaten all other 24 groups within the S&P GICS Level 2 index and returned 37.51% through 3/27/24, with one more day in the month and quarter.
This performance has doubled the next best group which is Media and Entertainment, which is higher by +16.24%.
As the daily chart shows of the S5SEQX (S&P Semi & Semi Equipment index) the minor stalling out near former highs and pullback to multi-day lows has done no damage to the broader trend.
Much of this weakness is thought to represent quarter-end re-positioning and likely serves as a buying opportunity this week.
Until/unless larger trends are broken (which would involve a break of March lows) a push back to new all-time highs is likely during the seasonally strong month of April.
Overall, as a worst-case scenario, I expect that a Triangle formation is occurring in the Semiconductor sector. Thus, 2-3 days of weakness likely could form a higher low than March before pushing back up to new all-time highs into mid-April.
The best-case scenario would involve S5SSEQX likely holding last week’s open gap before pushing back up to 4500. Bottom line, this sub-sector of Technology remains attractive.
S&P Semi & Semi Equipment Index
Capital Goods rally has proven to be one of the strongest in the last month
This group is worth mentioning given the lengthy uptrend that happened after the large base breakout which occurred back in December 2023.
S5CPGS, the S&P Capital Goods index, is higher by +11.22% YTD, the 7th best performing GICS Level 2 index of the 25 groups that make up the Level 2 groups for SPX.
As can be seen below, the large base began to trend up parabolically once the breakout was finally confirmed.
Stocks like GE 1.45% , ETN 1.32% , PCAR 3.07% and HUBB 2.96% all returned over 25% over the past three months.
This Capital goods index has shown no evidence of rolling over, despite being overbought. While it’s right to monitor for any evidence of this recent uptrend starting to give way, at present this remains one of the best parts of Industrials, a group that I am overweighting for 2024.
Pullbacks in this sector, if/when they occur, should provide buying opportunities in May.
S&P Capital Goods Index
Materials is set to make its highest monthly close ever
Interestingly enough, the Materials sector (as shown by the S&P Materials Index [a GICS Level 2 index]) is set to exceed the former monthly high close from December 2021 (at current levels with one day left) to achieve the highest monthly close ever.
This sector’s performance has been jumpstarted in the last month following Powell’s dovish stance and the FOMC’s expectations on rate cuts coming into alignment with what the market’s Dot plot shows.
Energy commodities along with many metals have begun to turn higher to join the recent parabolic moves in Cocoa and frozen Orange juice and the stocks of precious and base metals have been slowly but surely moving higher.
This breakout to new highs likely will result in a strong Q2-Q3 period of performance for Materials at a time when the index price has just pushed to new highs. On a relative basis, Materials is close to breaking out vs. the S&P 500, which I’ll show in more detail in tomorrow’s note along with detailing some of my favorite Materials names.
For now, this is arguably a positive move, and the breakout to new highs likely does not lead to immediate mean reversion. I included FCX 0.99% in this month’s UPTICKS report and feel that Freeport McMoran is attractive given the recent breakout in Copper.
S&P Materials Index
Utilities up 5% and showing some initial evidence of a trend breakout
Interestingly enough, the Utilities sector has taken the lead among the Defensive groups in breaking out above a lengthy intermediate-term downtrend as the 1st Quarter is coming to a close. This is evident on both the Equal-weighted and Cap-weighted Utilities ETF’s along with the S&P Utilities index from Bloomberg shown below (S5UTIL).
While relative charts of Utilities to S&P 500 have not yet shown a breakout, they are getting very close and two different DeMark related exhaustion signals (TD Sequential and TD Combo) have both been triggered and confirmed.
While some of this Utilities strength is due to the power companies which are linked to Artificial Intelligence and have pushed higher sharply in the last couple months, it’s always worthwhile to make note of a breakout in the Utilities sector, regardless of the reason.
Bottom line, Utilities like CEG 1.08% and NRG 2.45% , not to mention PEG -1.17% and NEE 1.14% have shown outsized gains vs the rest of the group.
However, even on an equal-weighted basis, the Invesco (RYU) Utilities ETF looks set to make the highest monthly close since last Summer, which has largely come to life just in the last month.
Overall, I’ll monitor this sector for evidence of a relative breakout in April and/or if other defensive groups start to achieve breakouts relative to the S&P 500.
At present, despite the distortion, I believe that Utilities likely does continue to strengthen on an absolute basis and could very well outperform in April given this recent uptick in relative strength.
S&P Utilities Index
