Equities have extended gains and have now come within striking distance of late March peaks. SPX has nearly recaptured all of the period of weakness from late March into April, and likely will test and break out above resistance as US Dollar and US Treasury yields start to weaken. The uptick in Financials, Materials, and Industrials are constructive factors towards helping the market begin to show more broad-based strength. Additionally, Small and Mid-cap styles have come back to life over the last week and this recovery is also important despite it being in its infancy. Overall, I expect that SPX has little resistance ahead of late March highs at 5264.85 and eventually can exceed this as the rally grows stronger into June with targets near 5400.
Equities have slowed the pace of their ascent ahead of this week’s important CPI data, which likely could serve as a catalyst for Equities, Treasuries and the US Dollar this week.
Specifically, any CPI print that shows signs of prices easing could be promising for Equities as the price of both US Dollar and US Treasury yields start to fall. Both DXY and ^TNX -0.65% lie near important short-term support heading into Wednesday’s CPI report.
While softness in economic data could hasten a Federal Reserve rate cut, it’s having an unusual effect on sentiment lately as University of Michigan data last week came in quite weak. As I discussed last week, the data now seem to show Hedge fund positioning having turned more defensive, and many seem to be on guard for any further evidence that could stoke stagflation fears.
Technically, however, it remains difficult to have much of a negative opinion on US stock indices given the degree of comeback that SPX and QQQ have shown lately. Stocks like AAPL 0.25% , shown below, are beginning to rise back sharply, and this should give comfort to those are might be worried about a high CPI print.
Monday’s AAPL 0.25% close has finished at the highest level since February, and should boost technology even further despite other sectors not participating as well as desired.
Daily charts of AAPL, as shown below, likely has little overhead resistance until $200, and has begun to outperform other “Magnificent 7” stocks lately given its uptick in momentum.
Overall I like AAPL technically and feel that this can start to show better relative strength in the weeks to come vs. recent months, as the stock’s technical position has improved meaningfully.
Apple Inc.
Economic data have plunged to the lowest levels in 16 months vs. Expectations
Interestingly enough, the Citi Economic Surprise index has reached the lowest levels since January 2023. This index shows economic data vs. expectations and given last week’s negative surprise on employment data and low Sentiment readings, this index has just undercut the prior lows made this past January.
Treasury yields have also been a good barometer of economic data, as recent negative data points have directly led yields to start to turn lower.
While this isn’t an index that’s helpful in calling recessions, it does help to visually see how recent economic data are coming in vs. expectations.
If this week’s CPI data are benign, one would expect this to keep falling, and might help the Fed target July for a month for Rate cuts, vs. November, which is where swaps markets are now priced.
Technically speaking, breaking a prominent low that’s not been tested in a few months typically will lead to downward acceleration, as momentum has turned negative and the technical uptrend from mid-2022 has certainly been broken as economic data began to miss vs. expectations going back since late 2023.
Citi Economic Surprise
Most-Shorted stock basket jumps to the highest level since last Summer
Monday’s US Equity trading showed some evidence of having some characteristics of a Short squeeze, as the Goldman Sachs (GS) Most Short rolling basket jumped to the highest levels since last Summer.
This basket is made up of the 50 names in the Russell 3000 with market capitalizations greater than $1 billion that have the highest percentage of short interest as measured by float.
Meme stocks like GME 3.72% and AMC 0.75% jumped sharply on Monday, and nearly all of the top 10 outperformers in QQQ were stocks which have been in steady downtrends like MRNA -0.95% , WBA -1.16% , SIRI 1.30% , FTNT 3.47% , GILD -0.79% , and INTC 0.27% .
Overall, given lower retail participation, lower trading volume and less Call option volume than 2021, it’s thought that this uptick in meme trading likely should prove short-lived as compared to a few years ago.
This index is normally not utilized to make market predictions, but rather just serves to explain unusual market behavior, and days when lots of highly shorted stocks make big gains, which was the case on Monday.
Goldman Sachs Most Short Rolling
Chinese Equities extend gains again, and might show outperformance into mid-June vs. SPY
Technical momentum in China’s stock market rally looks to continue and most counter-trend exhaustion signals suggest that mid-June might be a time where China’s recent outperformance vs. the US might stall out.
Earnings for several big Chinese names are set to take place this week, (BABA -2.22% , TCEHY, BIDU -1.19% , and JD -4.40% ) but Monday provided another day of sharp Chinese outperformance potentially over the auctions of some special bond offerings this week.
My weekly relative chart of FXI -2.34% vs SPY -0.05% broke out of a prominent downtrend a few weeks ago and looks set to continue higher in the short run given recent structural improvement and lack of counter-trend exhaustion.
DeMark counts on this ratio based on the formation of a potential TD Sell Setup would take at least another 4-5 weeks to complete at the earliest.
(This ratio moves higher as Chinese Equities outperform US, and lower when they underperform.)
While trade friction ahead of the US Election combined with China’s own downbeat readings on money supply data might eventually prove to be a concern for the stock market, the next month looks likely to show further gains, and it appears like some additional outperformance in FXI vs. SPY could be likely.
FXI vs SPY
