S&P and QQQ remain pointed higher, and despite being mildly overbought, should still be able to push fractionally higher into early next week ahead of a possible short-term top. Treasury yields look to have followed through on the early weakness seen on Wednesday, and it’s thought that a falling US Dollar and Yield scenario generally should be supportive for risk assets into the Fall. However, given that more than half of S&P’s major 11 sectors have been lower over the last three months, it’s not incorrect to say that Technology domination has camouflaged the market from the skittishness being seen in many sectors. Near-term, a run-up into next week might pave the way for a minor stalling out in Technology. However, it’s expected that weakness in the back half of June should prove short-lived and make SPX attractive for further gains into August.
As I’ve mentioned repeatedly in recent weeks, this Equity surge has proven impressive, but much of the credit goes to Technology and Technology alone, while many other sectors have not only failed to participate, but in some cases have declined.
In Equal-weighted terms, 7 of the 11 sectors that represent the S&P 500 were down over the last month and six of those have been negative on a 3-month basis. This is quite unusual given that SPX and QQQ have pushed back to new all-time highs in resilient fashion. On a cap-weighted basis, when examining the Sector SPDR ETF’s, that number is five sectors on both a 1 and 3 month basis which have shown negative returns: REITS, Consumer Discretionary, Healthcare, Materials, and Financials.
Note, this isn’t a bearish omen necessarily for one simple reason: Technology continues to outperform and has broken out yet again vs the S&P 500 on a relative basis back to new all-time highs. Until/unless Technology starts to wane and turn lower, it’s arguably right to still trust this market, despite the lack of participation from other groups.
As shown below, SPX remains pointed higher, and Thursday’s close near the top of the day’s range after early weakness should be able to help the index lift even more into early next week.
However, I suspect that the upside might be limited to around 100 points higher. Limited upside in the near-term is based on the following reasons:
- Projections of the May 2024 rally compared to the most recent rally from May 31st lows.
- An Elliott-wave style five-wave advance looks quite visible from late May lows, and could be complete within the next 1-2 weeks.
- Rallying up to/above 5500 might allow for DeMark-based counter-trend exhaustion to appear on multiple timeframes for the first time in nearly two months.
- My AAPL cycle seems to wane in the back half of June into July. This could be important given AAPL’s representation in the SPX.
However, the positive trend combined with lackluster sentiment which has been slow to turn bullish coupled with positive June and July seasonality during Election years and Technology’s dominant strength all combine to make a bearish view clearly false, technically, in my view.
Bottom line, it looks early to be bearish, and I still expect further upside. However, it’s doubtful that AAPL will continue to rise at 5% a day like it did Tuesday into Wednesday’s close. Furthermore, the lack of upward progress with Small-caps despite Treasury yields plunging and Financials and Industrials waning is a bit disconcerting.
Overall, if SPX were to peak sometime in late June, my expectation would be a 38-50% retracement of the rally from mid-April before finding support and then rallying back into late July to late August. For now, there’s nothing to go on to suggest any kind of more pronounced market weakness, but it’s wise to always be prepared in the event our steep SPX uptrend starts to give way.
S&P 500 Index
Repeated from last night’s Report for emphasis: For those that utilize counter-trend exhaustion tools towards attempting to find peaks and troughs in US Equity markets, it should be noted that QQQ could very well line up with both daily and weekly signs of upside exhaustion (In the form of a TD Sequential and TD Combo 13 Countdown signal) as early as next week. (Ideally, weekly charts would show a stronger signal on the presence of TD Sell Setups along with a TD Sequential 13 Countdown signal for QQQ, and this would require another 2-3 weeks possibly.)
SPX targets look to possibly materialize near 5521 while QQQ could hit 482.
Performance has been lackluster across many sectors
The data below might seem shocking to those who view SPX as a gauge for performance, as nearly half of the major SPX sectors have shown negative performance over the last one-, and three-month periods.
This performance table is ranked based on the last week, which shows Financials and Healthcare, which represent a combined 24% of SPX, lower on a rolling five-day basis. The performance below highlights these sectors on an Equal-weighted basis to strip out the dominance of the large-caps on performance data.
Equal-Weight S&P 500 Sector Performance
Energy could prove disappointing given supply starting to ramp up again
Crude has engineered a minor bounce in recent days, but technically now looks to be at trendline resistance which might result in a stalling out and turn back lower.
Energy proved to be one of the worst performing groups in Thursday’s trading, 2nd worst to Communication Services, and fell more than 1% in Equal-weighted terms (RYE).
As news reported Thursday, American WTI Crude stockpiles rose by 3.7mm barrels last week, contrary to industry expectations of a draw. This supply combined with OPEC+ leaning towards increasing production in the months ahead very well might prove to be a concern on the Supply/Demand picture for Crude.
The International Energy Agency (IEA) warned of a major surplus this decade as the world transitions away from Fossil fuels. While it’s hard to say what the timetable of this will be, given that 2024 is an Election year, it would make sense that US production remains high to get Crude prices and Inflation lower ahead of the election (see today’s PPI data which showed Energy as a particularly big reason for the miss).
XLE is now the weakest of the 11 sectors, performance-wise, over the last month, down by -4.59%, more than double the negative performance of the next worst sector, Financials which is -2.44% (XLF) in rolling 1 month returns. I’m increasingly losing patience and interest in Energy given the lackluster performance combined with the supply/demand picture not serving to give much confidence to Energy bulls.
Crude very well could peak out here. Conversely, a move above $79.50 in front-month Futures would allow for a bit more rally to $82 before this turns back lower to the lows.
Crude Oil Futures
Tesla minor breakout looks encouraging on above-average volume
Post Close, TSLA’s shareholder meeting announced that Elon Musk’s 2018 compensation package had been reapproved, and the company’s headquarters had been successfully transferred to Texas from Delaware.
Without concentrating on the specifics of this meeting, or the ramifications thereof, the stock has begun to look more interesting technically following Thursday’s breakout of triangle resistance on heavy volume.
While the stock slipped intra-day to close higher by just shy of 3%, TSLA managed to officially exceed its resistance near $183 on good volume and should pave the way for a rally up to $230-5 initially.
Momentum had begun to improve following TSLA’s bottoming in mid-April, and despite the six weeks of sideways consolidation, Thursday’s rally should pave the way for gains for TSLA at a time when other Automakers have been showing good gains on Electric vehicle sales.
Overall, TSLA remains part of my UPTICKS list and I feel that a rally to $230 should be underway.
TSLA Equity
