Equal-weighted SPX down every day this week as USD, TNX climb

Key Takeaways
  • RSP has consolidated, despite the comeback in Technology
  • Technology should stall out near prior highs allowing for other sectors to catchup
  • KWEB pullback doesn’t look serious and should be buyable next week
Equal-weighted SPX down every day this week as USD, TNX climb

Equity trend bullish but I suspect that until both DXY and TNX break trendline support the rally might prove a bit choppier into the end of May before a stronger push higher. A broad-based move seems to be approaching, but hasn’t yet been confirmed by a breakout in Equal-weighted S&P 500 nor Russell 2000 index. Overall, while short-term trends have been bullish in SPX and QQQ, the last few days have been lower in Equal-weighted SPX, showing consolidation, despite recent strength in Technology.  I suspect this weakness proves short-lived given Tech strength, and other sectors should be able to come to the rescue.  A broad-based rally should begin by end of month, and momentum and breadth are supportive of further gains into mid-to-late June.   

S&P has diverged from Equal-weighted S&P given Tech outperformance  

-S&P 500 in Equal-weighted terms has fallen every day this week, despite Technology roaring back.

-US Dollar and Treasury yields have been bouncing which directly coincides with this Equity market weakness.

-Technology’s 30% weighting in ^SPX -0.28%  has helped to camouflage this week’s consolidation in markets.

-RSP might fall for a few more days, but looks buyable into end of May, while Large-cap Technology might show some consolidation.

-Overall, it’s important to recognize the degree of distortion that Technology is causing as it rallies while the broader market stalls.  This divergence makes it impossible for some investors to keep up with the SPX and QQQ, and passive investing has a huge edge given the extent of Technology dominance within the indices.

As shown below, Invesco’s Equal-weighted S&P 500 has not moved back to new highs, but has been slipping this week.  RSP has been lower all four days this week, despite Technology’s big comeback. I don’t feel this pullback should prove long-lasting, but at present, it looks to extend into early next week before stabilizing and turning higher.

RSP

Equal-weighted SPX down every day this week as USD, TNX climb
Source: Trading View

Technology faces some near-term Headwinds after strong showing this week

Interestingly enough, daily relative charts of Technology vs. S&P in equal-weighted terms both show this area to be important as an area which might coincide with resistance.

While I don’t expect this to prove too long-lasting, the combination of approaching a former meaningful high along with producing a TD Sell Setup on relative charts (of RYT vs. RSP -0.15% ) should result in near-term congestion for “Tech” in all likelihood.

Whether or not other sectors can immediately play catchup to Tech’s outperformance is unclear right away.  However, once this bounce in Yields and US Dollar starts to turn lower, it arguably should prove more important towards producing a broad-based rally.

RSPT/RSP

Equal-weighted SPX down every day this week as USD, TNX climb
Source: Symbolik

Chinese Equity selling should prove short-lived, and is directly in relation to US Dollar strength

I don’t suspect that China’s Equity rally has run its course.  However, the near-term trend violation of the most recent uptrend does look to result in some near-term consolidation.

The most likely area of support for KWEB -1.02%  should materialize near $29-$29.50 and might be touched into next week.

This recent selling pressure in Chinese Equity ETF’s looks to be directly correlated with the recent reversal higher in both US Treasury yields and US Dollar.

Overall, I expect that US economic weakness reasserts itself in the weeks ahead, which could put pressure on both Yields and US Dollar once more.

Further weakness in US Dollar into this Summer/Fall should directly help Emerging markets, and China specifically to begin rebounding again, and KWEB should push up above recent highs up to $36, in my view.

KWEB

Equal-weighted SPX down every day this week as USD, TNX climb
Source: Trading View

Metals also being affected in short run by Dollar strength

This Dollar rise looks to have been negative for Commodities this past week, as many precious and base metals turned down sharply.

Similar to my thoughts on China, and the US Equity market, I believe that this pullback in the Metals should prove short-lived and buyable.

Silver, as shown below, has retraced around 38% of its recent rally, but might require another 2-3 days of weakness before bottoming and turning back higher.

Ideally, $29.50 should prove important to Spot Silver (closed Thursday at $30.12) and would represent a 50% retracement of this recent rally.

Volume was far heavier on the recent rally than it’s been on recent weakness, and this selloff in recent days is making Silver a very attractive risk/reward opportunity.

I expect that near-term weakness will likely stabilize and turn back to new all-time highs.  However, this likely depends on real rates starting to slide back lower, which might depend on weaker economic data.

Silver Futures

Equal-weighted SPX down every day this week as USD, TNX climb
Source: Trading View
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