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.
SPX‘s back to back quarters of double digit gains has sparked a rally which seems to grow broader each week. As discussed last week, Q2 2024 represented the 11th best 1st Quarter since 1950.
While many investors remain understandably focused on Technology stocks, it’s been Energy and Materials which have “stolen the thunder” over the past month.
As I’ll illustrate later in this report with a few supporting charts, this push into commodity-related stocks looks to be just getting underway, as the recent breakouts in Energy and Materials sectors might suggest.
Despite a higher than anticipated supply figure from Treasuries coupled with better PMI data having lowered the likelihood of three interest rate cuts by the FOMC (as per Fed-funds futures positioning data) the rebound in China along with WTI Crude oil seems to have squelched the fears of any decline in demand for raw materials.
For now, many continue to be focused on the S&P 500’s parabolic gains (which looks to have more upside to go when eyeing the S&P’s breakout to new all-time highs in Equal-weighted terms).
This two-hour intra-day S&P 500 chart shows the minor churning which has been ongoing since late last week. This minor consolidation remains part of a larger uptrend, and until 5200 is broken on a daily close, Monday’s minor pullback makes S&P more appealing from a risk/reward perspective.
Technically, an advance back up to 5350-5400 looks quite possible in the weeks ahead. The two key areas of technical importance for the days ahead lie near 5200 as support, while 5265 is near-term resistance. Breaks of either of these levels could result in additional follow-through. However, the odds greatly favor additional upside progress for now given the bullish seasonality of April Election-year tendencies.
S&P 500 Index
China’s upward progress is beginning to gain some momentum
The rally in Chinese Equities appears to be gaining momentum, and Monday’s FXI rally managed to hit the highest levels since early March but is closing in on the highest daily closing price for 2024.
Downtrends from last Summer have been exceeded for FXI (Ishares China Large-cap ETF) and the Shanghai Shengzhen index has officially managed to close back up above its 200-day moving average.
I suspect that the Caixin PMI data could have served as a possible positive catalyst for Chinese Equity index gains. Moreover, the recent strength in Chinese Equities seems to have boosted investor sentiment and look to have coincided with a meaningful breakout in the price of Copper.
Overall, I still feel that US stocks represent a better risk/reward in the long run than Chinese Equities and cannot say that US stocks should begin lagging anytime soon.
However, for those interested in attempting to participate in a rally in Chinese Equities who aren’t involved thus far, both FXI and KWEB are appealing options, in my view, which are both diversified.
My personal technical favorites of the Chinese stocks which have ADR options for investment are EDU, DQ, SEED, TCOM, JD, TCEHY, and BABA.
iShares China Large-Cap ETF
Copper’s rally looks to be ongoing. Price gains up to $4.50-$4.75 look possible
As discussed in recent weeks, the breakout in Chinese Equities in recent months also coincided with a similar breakout in the price of Copper.
I selected Freeport McMoran (FCX) for this purpose within my UPTICKS list and feel that this is an attractive technical stock which often can correlate with gains in the price of Copper.
Monday’s (4/1) gains in front-month Copper futures helped this to achieve the highest daily close of the year and could help to jump-start the move up to $4/lb. initially with intermediate-term targets near $4.50-$4.75.
Copper Futures
Coffee also breaking out of large base
Interestingly enough, Coffee has also successfully just broken out to the highest levels since Spring 2023, as per May Coffee futures.
This is a very appealing breakout of a lengthy one-year triangle pattern, and could result in Coffee spiking up to above $2.50/lb.
Stocks like Starbucks (SBUX) need to be watched for evidence of weakening in the weeks/months ahead given the possible negative correlation with Coffee prices pushing steadily higher into this Summer.
Coffee Futures
Materials breaking out vs. Equal-weighted S&P 500 bodes well for additional relative strength
As shown below, Materials sector has just achieved a relative breakout vs. the S&P 500 in Equal-weighted terms to match the breakout back to new all-time highs in the Sector SPDR Materials ETF XLB.
Relatively speaking, the Invesco Equal-weighted Materials ETF exceeding a two-year downtrend coupled with this ratio of (RTM vs. RSP) reclaiming former lows that had been violated is a bullish sign that should drive Materials higher in the months to come.
This sudden uptick in relative strength in Commodities and many commodity based stocks makes it worth raising the technical attractiveness of Materials to an Overweight, technically speaking.
Equal-weighted Materials ETF / Equal-weighted S&P 500ETF
Materials on an Equal-weighted basis should rally to test/exceed 2022 peaks
The Equal-weighted Materials ETF by Invesco is a more realistic ETF to follow for a gauge of Materials strength given the lopsidedness of the XLB representation.
Simply stated, Linde PLC (LIN) occupying 21.5% of XLB along with SHW, FCX, ECL, APD combining to represent over 45% of XLB makes this an unfair benchmark to utilize for studying this sector.
While XLB only represents about 2.7% of ^SPX, the RTM still shows a very strong move higher underway that has reached the highest levels since Spring 2022. (In other words, despite the low representation of Materials within the SPX, this still looks like a very constructive move.)
I anticipate a push to test and likely exceed all-time highs from 2022 this year in the Equal-weighted Materials ETF.
Some of my favorite technical stocks within Materials outside of FCX are : CX, LPX, TECK, WRK, NUE, ATI, STLD, CTVA, SHW, HMY, VMC, MLM, BLL, and EMN.
While stocks like VMC and MLM are understandably stretched, they haven’t shown evidence of any real weakness to consider avoiding them. However, stocks like BLL and EMN which were former laggards, are starting to show real relative strength lately.
One of the more attractive technical patterns of all the Materials stocks can be seen on Louisiana Pacific (LPX) which has just made an attractive technical breakout of a lengthy base.
As this Symbolik monthly chart of RTM shows below, the DeMark-based counts could come together within 4-5 months time to signal exhaustion from both TD Combo and TD Sequential in unison, along with the monthly TD Sell Setup count showing a completed Sell Setup.
At present, no confirmation of the TD Sequential signal is in place and therefore should be ignored. I expect RTM to push higher to $39-$40.
Equal Weighted Materials ETF
