CPI might prove to be the catalyst for Equities to break out to new highs

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 choppy over the last couple weeks, 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 over the next couple weeks before even minor consolidation gets underway.  Treasury yields and US Dollar should have limited upside after this bounce, and both look close to rolling over.

Recent churning has proven to be a source of frustration for Bulls and Bears alike, but US stock indices remain attractive and the path of least resistance continues to be higher.

Large-cap Technology’s recent slide hasn’t adversely affected SPX nor QQQ and both achieved greater than a 10% rise for 1^st Quarter despite some underperformance out of the “Magnificent 7”.

This week’s CPI report might serve as a catalyst for helping SPX break back higher out of its recent range and for now the recent sector rotation is seen as being a bigger positive for indices than the minor consolidation having played out within the Technology space.

Daily SPX chart shows price having closed just above 5202 which puts this at the same levels as occurred back on 3/20.  However, unless last Thursday’s lows are broken (SPX_5146) it’s much more likely that SPX pushes back higher over 5254.38 close from 3/28 to make a new high.

Technology has largely stabilized following its recent consolidation.  Meanwhile, other SPX-heavy constituents like Financials remain in good shape and are pushing higher, and Discretionary managed to turn in the best performance of all major SPX sectors Monday.

All in all, while a Technology decline might prove to be problematic for US Stock indices, some minor churning which takes the back seat while Industrials, Energy, Materials, Financials, and Discretionary push higher is seen as quite constructive.  Given the importance of Wednesday’s CPI report, any breakout might not occur until after Wednesday’s Economic data if a weak CPI print results in Treasury yields starting to turn back lower.

S&P 500

TLT looks to be nearing the end of its selloff

The 20+ Year Treasury Bond Ishares ETF (TLT) looks close to bottoming after its recent four-month technical decline.

This pattern has largely played out as a choppy consolidating pattern that should bottom sometime this month before pushing back to test and exceed last December’s (2023) peaks.

At present, this decline could be complete sometime in the next 1-2 weeks but might involve a pullback to 90 before this starts to turn higher.

Most of the cyclical projections for Yields call for a big decline into August of this year.  Furthermore, this wave pattern looks to be at the tail end of completing another ABC pattern following the two-month decline from December into February 2024.

Overall, any rise back over 3/28 intra-day peaks at $95.02 would suggest that long interest rates have peaked for the Spring, bringing about a decline in the months to come.

20+ Year Treasury Bond Ishares

QQQ to SPY ratio has declined since January 2024 but failed to keep Equity indices from pushing higher 

Interestingly enough, SPX and QQQ have still been able to push higher without many of the former leaders within Large-Cap Technology showing the best strength.

The ratio of QQQ to SPY broke its short-term five-month uptrend earlier this year which has resulted in QQQ underperforming SPY.

Stocks like AAPL and TSLA, not to mention NVDA of late, have all been struggling over the last month, but look to be nearing support.

Technically, I’m expecting that Large-cap Growth reasserts itself as Treasury yields start to roll over, and Technology should be able to push back to new absolute and relative highs vs the SPX.

Near-term, it’s important to keep this relative chart of QQQ to SPY handy, which shows some encouraging signs of stabilization after the pullback over the last few months.

QQQ / SPY

Mexico remains technically attractive following its recent breakout

Along with Argentina, Mexico’s EWW 0.69%  has proven to be one of the most attractive technical ETF’s of the LatAm space, and should continue to show excellent signs of strength.

The breakout of EWW’s three-month base since last December has helped EWW accelerate over $70 in recent weeks and near-term technical targets lie between $72.50-$74.  Intermediate-term targets for EWW Lie near 2013 peaks at $76.80.

Meanwhile, Brazil looks to be also trying to show some near-term strength but remains very much a laggard, technically speaking, not dissimilar from other LatAm markets like Chile.  Two areas look important for Brazil’s Ishares MSCI ETF EWZ 0.39% :  $34.13, the late February peaks, and $35.74, the peak from late December 2023.

The ability to make a weekly close back over $35.74 would represent the first intermediate-term signal that a much larger rally might be possible for Brazilian Equities.

At present, EWW and ARGT are my favorite ETF’s for those seeking LatAm exposure.

Mexico Ishares

Breakouts in Platinum and Iron Ore help to strengthen the case for Metals and Mining outperformance 

Both Platinum and Iron ore look to have made meaningful breakouts in Monday’s trading (4/8)

This bodes well for these to join some of the recent strength seen elsewhere in the space and begin trending back higher after recent consolidations in both.

PPLT 1.25%  is the Aberdeen Physical Platinum ETF which just broke out to the highest levels since January, three months ago.  This should push higher to challenge $93.  Meanwhile Iron Ore, as seen in Bloomberg (IOEU4) also just pushed up to exceed its downtrend going back since early January.

XPL the ticket for spot Platinum (as shown below) has just successfully exceeded the entire trend from Spring 2023 as of today.

Overall, both precious and base metals are slowly but surely starting to strengthen, and these latest two examples help to add conviction to the Metal and Mining trade.

Platinum