Equity trend bullish but might stall out temporarily near late March highs barring a very light CPI number that results in Treasuries extending recent gains. Short-term trends remain bullish, and momentum and breadth are supportive of further gains into June. Despite the weakening in US Dollar and US Treasury yields of late, we still lack the meaningful breakdown that would result in both of these beginning to accelerate lower. TNX move under 4.35% should drive SPX to 5400. It’s right to remain bullish
NASDAQ has pushed back to new all-time highs on a closing basis on Tuesday, while SPX, DJIA and Equal-weighted SPX remain just shy of late March highs.
While March highs look formidable given Wednesday’s important CPI report, it’s tough to believe that any stalling out would represent anything more than a short-term area of resistance ahead of a push higher to SPX-5400.
Importantly, a breakout in SPX along with NDX, DJIA and Equal-weighted S&P 500 to join the NASDAQ would represent a much more bullish development than NASDAQ Composite having made a new all-time high close on its own.
Sector-wise, the relative underperformance in Technology and Consumer Discretionary since March has not really hurt the market as other sectors like Financials, Materials, and Industrials have rallied to pick up the slack.
Healthcare is a recent “Up-and-Comer” which has been showing constructive relative strength over the past couple weeks. Given that it’s the 2nd largest group within SPX, meaningful relative strength in Healthcare is always important, and Biotechnology should benefit in the weeks ahead.
While Small and Mid-cap styles have demonstrated better strength since mid-April, they haven’t officially broken out relatively speaking to the broader market which might depend on more clarity of the FOMC’s interest rate cut cycle.
Below is the NASDAQ Composite daily chart showing today’s all-time record high close on daily charts. As can be seen, the intra-day high, which lies at 16,538.86, was not yet exceeded, and this will be important to get above. Furthermore, a breakout across the board in other indices, like DJIA and/or SPX, (and more importantly) Equal-weighted S&P 500 would have much more significance.
My intermediate-term NASDAQ Composite target is 18,490, which approximates a Fibonacci related alternate extension of the initial rally off the October 2022 lows.
NASDAQ
Source: Trading View
Copper up to highest levels since 2022
Copper’s ascent has grown a bit more parabolic as news of supply failing to keep up with demand on AI data centers, military spending, and “Green” spending.
July COMEX Copper traded up to highs of $5.026/lb, equivalent to $11,080 a ton, or more than $1,000 a ton above the benchmark contract on the London Metals Exchange.
This squeeze led July Copper Futures to trade up to nearly 29 cents/lb above the September contract. However this backwardation doesn’t seem to be mirrored in the physical market, which is a sign that the market is very well supplied.
Overall, I expect Copper to trade up to $5.25-$5.50 before likely beginning some consolidation next month. However, this remains a very bullish move on supply woes and I expect that it’s right to remain long and look to buy into dips on any evidence of consolidation.
Stocks like Freeport McMoran (FCX -4.33% ), which correlate well with Copper, just exceeded former peaks and likely can scale higher to the low-to-mid $60’s to test all-time highs, technically speaking.
Bottom line, given the extent of its move in recent months, Copper appears like not as great of a risk/reward over the next 3 months following this rally back to highs. However, until there is evidence of this beginning to turn lower, it’s right to expect a bit further gains into June, and stocks like FCX which correlate well with Copper, look quite appealing technically.
Copper Futures
Source: Trading View
REITS up to short-term resistance likely proves important to contain breakout for now
Despite the absolute gains seen in REITS in recent weeks, this sector remains the worst performing sector of any of the major 11 sectors on a Year-to-Date (YTD) basis with losses of 3.00% through 5/13/24.
REITS therefore are the only major sector which is down on the year, and both relative and absolute charts show REITS to still be in a downtrend, despite the probability of lower interest rates by the FOMC in the months to come.
Intriguingly, the appetite for REITS has fallen to the lowest levels since 2009, per BofA’s monthly Fund Manager Survey (FMS) for May. The underweight allocation to net 28% for Real Estate by FMS investors hasn’t been seen in more than a decade.
Thus, it’s right to look for signs of REITS reversing course in the months to come.
Initially, clues might be evident when looking at absolute charts of the Equal-weighted REIT ETF, or RSPR 0.49% . The recent rally has carried RSPR up to near $32.50 which aligns with a five-month downtrend from last December.
Any consecutive weekly closes back above $33 would likely shift the trend back into REITS in the near-term, and RSPR would likely gain ground up to the high $30’s.
Relative charts of REITS vs S&P (In Equal-weighted terms) show this sector trying to stabilize in recent months. However, insufficient progress has been made to suggest that outperformance is likely. (This relative chart is not shown.)
Given many investors voicing the opinion that Defensive trading might be coming back, it’s just important to note that REITS are still negative on the year and have not been a good outperformer vs. SPX, despite Chair Powell’s dovishness of late. Bottom line, REIT outperformance looks possible in the months ahead, but will take time. Initially, as shown below, a breakout of this ongoing downtrend looks necessary.
S&P 500 Equal Weight Real Estate ETF (RSPR 0.49% )
BofA Global Fund Manager Survey Sentiment has escalated, though not yet near previous highs of the past decade
It’s always important to monitor when Bank of America’s Fund Manager survey reaches extremes in bullishness, or bearishness.
That isn’t the case now. However, there has been a rather dramatic lift in bullish sentiment in the last 18 months based on optimism of rate cuts, and cash levels have dropped to near three-year lows.
However, despite a push to the highest levels since 2021, this sentiment poll has not reached any of the prior peaks seen at the four prior highs in sentiment over the last decade.
While this bears watching if it gets above 9 and closes in on 2021 highs (which might happen on further Equity market strength into this Fall) at present, it’s not high enough to warrant concern.
Furthermore, my studies on hedge fund sentiment show heightened fear given the weaker economic data of late. Bottom line, one cannot call sentiment overly complacent, nor giddy, despite the Meme-stock mania which has resurfaced in recent days. Many investors seem preoccupied with the possibility of Technology’s decline extending further along with facing a very contentious Election year climate. My view is this year’s negativity should be a positive for risk assets and drive prices higher in a broad-based fashion into this Fall.
