Chair Powell’s indication that the bias is still towards easing rates, along with a quicker tapering of Quantitative Tightening (QT) starting in June combined to send Treasury yields and the US Dollar towards lows of the day. Stocks rallied sharply on this news and seem to be attempting to carve out a bottom. This FOMC message clearly looks to be a more dovish message than the market was expecting, and Trends remain bullish from 4/19 lows. However, it remains difficult to claim that a push back to March peaks has gotten underway. I suspect that 4/19 lows near 4953 should hold on any backing and filling, while a rally back over 5123 should result in a quick move back to test and exceed 5265.
Overall, Wednesday’s drop in yields and the US Dollar coincided with a sharp rally in US Stocks off the lows of the day.
Technology failed to lead the rally off the lows, however; Communication Services, Utilities, Healthcare, Financials, and Materials all showed very good relative strength, and rallied more than +1.3% on the day.
This Equity rally produced a positive breadth reading in Advancing issues vs. Declining despite the late day setback into the close, and the move in Treasuries and the US Dollar certainly took the “wind out of the sails” of Tuesday’s breakout attempt.
As shown below, this churning which began a few weeks ago has not yet been resolved. However, the sharp bounce in SPX and the Treasury market looks constructive towards thinking that a low to our recent pullback from late March is getting underway.
Bottom line, a move back over 5123 will be necessary in confirming an SPX low could be in place which should drive prices immediately higher to test and exceed 5265.
S&P 500
Treasury yields look to have reversed yesterday’s breakout attempt and produced a bearish reversal
Wednesday’s About-face in Treasury yields proved important and bullish for risk assets, and gives some minor confidence that Treasury yields could be peaking out, at a time when many are positioned for higher rates (per CTA positioning data in Commodity Futures Trading data).
Until ^TNX -0.65% gets under 4.50%, it will be difficult to call a peak in rates.
However, Wednesday’s yield decline leaves yields near levels hit two weeks ago and has begun to take a gradual toll on momentum.
As discussed, my cycle composite turns down sharply in May into the month of August. While Wednesday’s reversal didn’t provide any technical confirmation, this dramatic decision to taper QT much quicker than anticipated seems to have been interpreted as dovish by markets, and could help risk assets recover, following AAPL’s earnings report tomorrow.
US Government Bonds 10 YR Yield
JNJ rally should provide some support to Healthcare rally
Johnson & Johnson made an important technical move when it rallied Wednesday back above $150.49. This served to confirm a bottoming out in JNJ -0.90% right near its prior lows which were established back in November 2023.
This is significant given JNJ’s size within the Healthcare sector and it represents the 3rd largest stock within the SPDR Healthcare ETF (XLV -0.39% )
As shown below, this looks to be a convincing bottoming attempt following its third test of an area of intermediate-term channel support in the last 13 months.
As many investors are aware, JNJ maintains a downtrend from its 2022 peaks, and has churned in a large sideways trend channel with some very identifiable peaks and troughs in recent years.
Given the choppy, overlapping pattern since it peaked two years ago in April 2022, I find it highly likely given its Elliott-wave structure, that JNJ will eventually push back to new all-time highs.
I also find that an April bottom which coincides at nearly a two-year anniversary of a meaningful peak to also be important, and adds some validity to JNJ having bottomed, time-wise.
Initial levels of important resistance lie in the low $160’s near $163, then $169. However, it will be the act of exceeding last August 2023 highs at $175.97 that will provide a structural runway towards a push back to new all-time highs. This should eventually happen. However, today was an important and bullish step towards thinking JNJ has bottomed which also is significant to the Healthcare sector given its size.
JNJ
WTI Crude nearing a key area of support
Crude has now weakened down to levels that make sense to expect some coming stabilization followed by a rally back to test and exceed April highs.
Despite the above-average range of Wednesday’s decline, price has pulled back to an area just above the uptrend from late December lows in WTI Crude.
Overall, my technical rating for the Energy sector remains “Overweight” and this recent weakness should be approaching an appealing area of support for WTI Crude, along with the broader Energy sector.
I do not suspect that Crude has made its peak for the Spring. Furthermore, despite this dramatic period of recent weakness, Crude should still head higher in the month of May, per cyclical projections.
Light Crude Oil Futures
XLE should be the vehicle to favor within Energy over both OIH along with XOP
Within Energy, the decline in Crude over the past few weeks has resulted in sharp underperformance in both OIH and also XOP.
Relative charts of XLE compared to both OIH and XOP looks bullish in the short run.
Technically it remains difficult to call a peak in Energy nor in Crude oil prices, despite the steep drop in WTI Crude back under $80.
This looks to be a temporary period of weakness and my cycle for WTI Crude still calls for a push back higher into May.
Bottom line, one should favor better performance in XLE given the recent improvement in this relative chart shown below of XLE -0.01% vs. OIH 0.37% .
XLE vs OIH
