Selloff should be complete by early next week - Here’s Why Array ( [cookie] => c01fca-3326dd-362905-fc3074-68d8f3 [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 2 [max_usage_crypto] => 2 [lock] => 1 [message] => [error] => [active_member] => 1 [subscriber] => 0 [role] => fsi_macro [visitor_id] => 504196 [reason] => [method] => ) 1
S&P and QQQ both showed minor weakness late this week, yet failed to do much technical damage. Both SPY and QQQ finished positive on the week, and while there was brief signs of rotation out of Technology, it doesn’t look to prove long-lasting. Equal-weighted strength earlier this past week was encouraging towards thinking many non-Tech related sectors could be starting to turn back higher to erase some of the recent divergence. At present, US Dollar and TNX look to be on the verge of large declines into August, and I suspect that the broad-based rally should get underway as 3Q gets underway. Overall, I see no evidence that our minor pullback from Thursday/Friday is indicative of anything more than just minor consolidation before yet another push back to new high territory.
Reasons why our minor selloff shouldn’t grow too severe and could be complete by early next week:
- Elliott-wave patterns look overlapping and choppy on hourly charts, not severe weakness from the high in an impulsive five-wave decline on heavy volume and negative breadth
- RSP along with DJIA did show minor technical buy signals relative to SPX which got underway late this week. However, the trends in SPY remain quite strong, thanks to Technology. Furthermore, without more evidence of technology weakness, I suspect that SPX very well could outperform RSP until the US Election.
- DeMark-based counter-trend exhaustion failed to trigger any kind of weekly “13 Countdown signals” (Sells) at the peaks this week. While Daily signals are apparent on SPY and QQQ, neither is confirmed, and weekly signals will require at least another two weeks of rally before any decline gets underway.
- There remains no evidence that Tech’s waning late this week represents anything more than just a few days of consolidation, as opposed to a bigger peak for Technology.
- Sectors like Consumer Discretionary, Financials, and Healthcare all showed progress this week, and sectors like Industrials look to be on the verge of turning back higher after nearly two months of consolidation.
- Interest rates and the US Dollar both “tipped their hands” on the decline into early June which turned the technical patterns for both bearish. A drop to new monthly lows should happen in the weeks ahead.
- Sentiment has turned a bit more positive than a week ago, but not nearly as optimistic as what would be required to expect a peak in Stock indices.
- Seasonality remains positive in Election year June’s and July’s going back since 1950 with median returns in both months above 1%.
- Trends have not been broken for either SPY, nor QQQ and until at least minor evidence of a pullback appears, it’s difficult to bet against the US Stock market.
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