Due to technical difficulties, there will be no video with tonight’s Technical Strategy
The US Equity rally over the last nine of 10 days has been constructive enough to think a move back to new all-time highs should happen into September ahead of any seasonal Fall correction. The Equal-weighted SPX has already pushed to new highs coinciding with the big breakdown in the US Dollar and Treasury yields and market breadth remains constructive with insufficient signs of optimism to expect an immediate selloff. Cycles show strength into September, and sectors like Financials, and Consumer Discretionary have shown admirable strength in recent weeks. Overall, until/unless Technology starts to roll over in bigger fashion, or the Economy starts to weaken at a much faster rate, it looks right to stay bullish and just buy dips, which likely begin in September from new all-time highs.
As stated above, the key reasons for bullishness involve the following: (Illustrated below in bullet form in bold print)
- SPX, QQQ are within 1% of all-time highs, while Equal-weighted SPX is already at new all-time highs (Not many discussing)
- Market breadth remains in good shape with over 72% of all Russell 3k names above their respective 200-day moving averages. The percentage of stocks above their 20-day moving average is now pressing up against July peaks.
- US Dollar and Treasury yields have both begun to implode, and are pulling back sharply. This coincides with the cycle composite studies on each calling for weakness into September.
- Sentiment remains guarded after our severe selloff in Technology into early August. While the level of put option trading has begun to recede in recent weeks, it’s not yet at levels which indicate concern.
- Daily and weekly Stock market cycles are positive into September before a minor drawdown, with intermediate-term cycles bullish into next Spring.
Below is a weekly snapshot of the US Stock market, shown by the Equal-weighted SPX ETF by Invesco (RSP). Given that price has just pushed back to new all-time highs this past Monday, it’s hard to bet against stocks going higher. As many know who are technically proficient, it’s typically not an opportune time to sell a market at new all-time highs. Financials and Consumer Discretionary have helped out immensely in recent weeks.
S&P 500 Equal Weight
Rate cut bets were little changed following the Fed Minutes
If traders were looking for clues for a jumbo rate cut next month in September, they didn’t get much proof of this after today’s Fed Minutes were released. Rates traders barely budged on their outlook for reductions to borrowing costs in the months ahead. Thus, the view remains that a Quarter-point cut is probably still more likely than a 50, particularly given an Election year. Rate cut odds now show between 25 and 50
Rate Cut Bets in Basis Points
US Dollar continues to crumble and move lower
The US Dollar’s acceleration lower, as seen by the US Dollar index (DXY) likely should lead this to the mid-90’s before any material area of support.
The US has held out on its rate cuts compared to many other countries, and while this time of reducing borrowing costs seems to be fast approaching, the ongoing weakness being seen in economic data recently is having a bearish effect on 2-Year yields as well as the US Dollar.
The first meaningful area of support lies near last July 2023 lows at 99.57. However, this structural breakdown of the triangle from last Fall likely results in even lower prices into 2025 before much support.
US Dollar Index
Energy being lowered to a technical Underweight given ongoing Crude weakness
Simply stated, Energy just isn’t working well at a time when Energy consumption typically starts to wane as Summer Driving season nears its end.
Front month Crude futures have broken down to the lowest levels since February 2024, and could begin to show much further weakness if the OPEC+ output hikes materialize as expected to in the month of October.
Gasoline consumption has fallen short of 2021 levels as well as 2019 levels reached before COVID-19 got underway.
Technically speaking, Crude oil’s breakdown this week is technically bearish, and likely will result in further weakness in Crude into 2025.
My cycle composite (not shown) which was discussed in recent months, showed a distinct negative bias for Crude oil starting this Fall into 2025, and my feeling is this downward trajectory is getting underway.
Techniccally I expect last May’s lows to be tested and broken in WTI Crude futures and price might selloff sharply to the low $50’s into next year.
Crude Oil Futures
Breaks of the following levels are problematic, technically speaking:
XLE- $85.47
OIH- $278.63
XOP- $127.75
RSPG- $74.31
While these levels have not been violated yet, I expect they should be this Fall and should lead to additional weakness in Energy. Given the negativity of the Crude cycles coinciding with technical structure, I’m lowering Energy to a technical Underweight.
Energy relative to Equal-weighted SPX appears on the verge of breaking down
Energy as a sector in equal-weighted terms vs. Equal-weighted S&P 500 has not yet broken down yet, as shown in the chart below.
However, I believe this should be forthcoming, and it looks right to Underweight Energy into 2025, technically speaking.
Overall, I feel like if US Energy production stays at current levels or rises (which would be likely in a Trump Administration) this should be negative for Energy.
The two positives which might happen involved OPEC+ pulling back from their former commitment to hiking Inventory levels in October, along with geopolitical conflict intensifying. Given that no information on either of these is present for now, and prices have been weakening sharply, it looks right to expect further weakness.
Chinese demand looks to be waning, given recent consumption trends, and that also looks to be a technical negative.
Energy vs Equal Weighted SPX
