Stocks should be bottoming as June gets underway. US Treasury yields and the US Dollar both should be on the verge of turning down more sharply in the days/weeks ahead which might coincide with less inflationary economic data over the next couple weeks. (May proved to be the best month for Treasuries to date). Overall, bullish June seasonality in Election years combined with a cyclical bottom following lack of material technical deterioration spells opportunity for US Equities in the month of June.
Monday’s Equity roller coaster ended with Equities higher at the end of the session, and it seems like risk assets paid attention to the ISM data while manufacturing also missed expectations as yields dropped sharply across the curve.
The drop in yields also pulled the US Dollar lower, and both EURUSD and GBPUSD look very close to upside breakouts.
However, there remain some issues with the lack of broad-based recovery just yet, as only three sectors finished positively today, Consumer Discretionary, Communication Services, and Healthcare. Yet, Equal-weighted Technology trimmed its losses to just -0.14% by end of day, a +0.25% gain which was a bigger boost to the main Equity gauges.
Overall, the hourly SPX chart tells the story, as it’s largely been unchanged since the middle part of May. Despite some fractional evidence of Healthcare and Consumer Discretionary trying to bottom out, it’s still going to be important to see a push higher in Financials and Industrials which have lagged lately.
This hourly chart shows the late day push carrying SPX up to 5283.41 by the close, just shy of 5302 hit near Monday’s opening.
The two key areas to pay attention to are 5302 and then 5342. Until both are exceeded, which likely will depend on a break of 5.31 by TNX and the 104 level by DXY, further choppiness very well could happen in the near-term.
However, the act of yields breaking down looks to be a big positive for Technology, and I suspect that Small-cap and Mid-cap gauges are readying for a rally in the month of June.
Any break of Monday’s mid-day lows of 5234 would postpone an immediate rally, allowing first for a test of either 5210, or 5185 with a maximum level of support near 5153. However, downside should prove limited, and it’s right to remain bullish, expecting an eventual push back to new highs.
S&P 500
Energy is being lowered to a Neutral rating, technically
The lack of rally in Energy looks to be worth paying attention to, now that WTI Crude has violated May lows which had largely held since the first week of May.
This suggests that WTI Crude could very well revisit last December’s lows in the high $60’s, as a minimum downside target, and should make Energy a difficult sector to overweight in the short run.
Specifically, given that XLE and OIH are breaking support today and XOP looks to be close to violating $146.72, I think it’s likely that Energy will underperform further into late July potentially before a bounce.
As discussed earlier Monday in #flashInsights, it seems that traders viewed the lack of an output cut extension through year-end as bearish. Thus, despite the fact that positioning data from CFTC on Speculators looks to be bearish, (which at extremes from a contrarian standpoint normally might be positive), the price action warrants paying attention.
Overall, this technical deterioration in both WTI and Brent Crude along with the Energy sector Equity ETF’s makes it right to consider Energy more as a technical Neutral rather than an Overweight until more stabilization and strengthening in technical trends are apparent.
Light Crude Oil Futures
Oil Services ETF breakdown warrants patience, as further weakness looks possible
The breakdown of the triangle pattern in the VanEck Oil Services ETF (OIH 0.93% ) looks troubling technically, and points to a good likelihood of a revisiting of early year lows in the weeks/months ahead.
Specifically, this chart shows a trend violation of $313 which happened on above average volume and a huge high to low range. The combination of this is considered a bearish technical development and could lead prices lower in the weeks to come.
Initial support for OIH should materialize near $280, while XOP looks to be close to breaking its own support at $147.62 which should drive prices down to $140 and potentially to $126.
XLE 0.36% might hold up the better than either XOP or OIH but looks to have support initially near $87.50, and then $82.81 and then $79 in extreme cases.
VanEck Oil Services
Mexico’s decline post-Election results likely leads to low $50’s for EWW
Mexico’s break of $64 warrants patience in the near-term and likely results in a retest of last October’s lows at $52.43 before much stabilization.
The severe decline in the Mexican Peso also likely proves short-lived, but might possibly revisit 18 USD/MXN before reversing course. While the Peso has been quite strong in recent years, buoyed by optimism of the US economy, generous carry, and low volatility, that might start to change in 2H 2024 as the central bank cuts rates, and worries about the US election grow.
While Mexico had been a strong outperformer within the LatAm space, the possibility that the ruling party, Morena, and its allies would get a supermajority in Congress seems to have spooked the market.
According to Bloomberg, a two-thirds majority in both houses would allow Morena to make constitutional changes, which might mean a potential threat to important Mexican institutions along with higher minimum wages.
Technically this break of a multi-month topping pattern is certainly not a good sign in the near-term, technically combined with the high volume big high-to-low range decline of Monday’s session.
The good news, technically speaking is that the weekly and monthly charts have been trending sharply upwards from 2020 andthese uptrends were not violated with Monday’s downside volatility (Not shown). Thus, one can make the case for possible near-term support near $57.43 based on this four-year uptrend. Moreover, even if broken by a small amount given near-term follow-through, it should prove short-lived.
Overall, I consider Mexico’s ETF EWW 0.71% to be an attractive risk/reward in the mid-$50’s and Mexico should still be favored over Brazil, relatively speaking.
iShares Mexico ETF
