S&P and QQQ remain pointed higher, and despite being mildly overbought, should still be able to push fractionally higher into early next week ahead of a possible short-term top. Treasury yields look to have followed through on the early weakness seen on Wednesday, and it’s thought that a falling US Dollar and Yield scenario generally should be supportive for risk assets into the Fall. However, given that more than half of S&P’s major 11 sectors have been lower over the last three months, it’s not incorrect to say that Technology domination has camouflaged the market from the skittishness being seen in many sectors. Near-term, a run-up into next week might pave the way for a minor stalling out in Technology. However, it’s expected that weakness in the back half of June should prove short-lived and make SPX attractive for further gains into August.
The divergences between AI-driven Technology and the rest of the market have grown much more pronounced over the last few weeks, as the broader Equal-weighted SPX has now fallen for four straight weeks, while the SPX just made new all-time highs yesterday and SPX has been higher for 7 out of the last 8 weeks.
This doesn’t have to be bearish to think that mean reversion (in the form of an SPX selloff) has to happen right away, of course, but it is worth keeping a close eye on. As discussed yesterday, at least five sectors have been lower over the last month as well as on a three-month basis.
Breadth gauges like McClellan’s Summation index have been trending lower in recent months, but until we start to see some evidence of Technology and QQQ starting to turn lower, it shouldn’t have much importance to emphasize.
Overall, two paths can happen during divergences of this sort: Either the leading indices start to correct to join the broad-based index gauges. Alternatively, the broader market begins to play catchup and closes the gap to SPX. Given the lack of meaningful weekly or monthly buy signals on relative charts of RSP vs. SPY, it looks more likely it could still prove difficult to have a broad-based market rally to the expense of SPY. ( In other words, even if/when the lagging sectors start to show more strength, this won’t be a time to expect meaningful underperformance in Technology.)
Thus, the key index ETF to watch should be QQQ -0.12% which has traded higher for seven of the last eight weeks. Many who utilize Demark signals have sounded warnings this week, citing the potential for daily “13 Countdown” exhaustion signals on daily charts for QQQ. This is true. However, these signals have not been confirmed.
Moreover, weekly DeMark counts remain premature at this point. Weekly QQQ charts (shown below) highlight a TD Sequential “12 count” while the TD Sell Setup count is on a 6 (out of a possible 9). Bottom line, if looking for an inflection point, it makes sense to consider the Weekly chart readings in one’s analysis, vs. just relying on daily charts. Furthermore, the next 1-3 weeks should be important as a period where both daily and weekly exhaustion might be shown in unison.
However, at this time, two daily signals on a daily chart simply don’t represent sufficient proof towards taking any action if the weekly charts are premature (per my own method of utilizing DeMark’s tools).
Nasdaq QQQ Invesco
Reasons for possible limited Upside in SPX, and QQQ.
- Projections of the May 2024 rally compared to the most recent rally from May 31st lows pinpoints levels just above current levels, i.e. SPX 5521 while QQQ might reach 482.
- An Elliott-wave style five-wave advance looks quite visible from late May lows, and could be complete within the next 1-2 weeks.
- Rallying up to/above 5500 might allow for DeMark-based counter-trend exhaustion to appear on multiple timeframes for the first time in nearly two months.
- My AAPL cycle seems to wane in the back half of June into July. This could be important given AAPL’s representation in the SPX.
- Divergence is growing between Technology and the broader market as sectors like Healthcare and Financials have both traded lower over the last three months.
However, the positive trend combined with lackluster sentiment which has been slow to turn bullish coupled with positive June and July seasonality during Election years and Technology’s dominant strength all combine to make a bearish view clearly false, technically.
Overall, if SPX were to peak sometime in late June, my expectation would be a 38-50% retracement of the rally from mid-April before finding support and then rallying back into late July to late August. For now, there’s nothing to go on to suggest any kind of more pronounced market weakness, but it’s wise to always be prepared in the event our steep SPX uptrend starts to give way.
STOXX 600 diverging negatively from S&P 500
The chart below shows the STOXX 600 Europe index which has broken the uptrend from October 2023 as of this past week. Meanwhile, the S&P 500 just hit new all-time highs this week.
Some of this European weakness is due to election uncertainty in France, but other countries’ indices like Italy and Spain have begun to follow suit.
The S&P is shown in green and has held up far better than the STOXX 600 (SXXP-Bloomberg) which dropped to multi-week lows this past week, not unlike the Equal-weighted SPX and the Small-cap Russell 2000.
Overall, AI-related gains for S&P have been helpful towards driving gains in the near-term for US stocks. Furthermore, it’s right to say that on an intermediate-term basis, both US and Europe remain in good shape following the recent push back to new all-time highs. However, in the short run, European stocks look to underperform a bit further.
STOXX 600 should find very strong support near 495, which represents an attractive area for SXXP.
STOXX Europe 600
SPX has just broken back out vs VGK
Recent divergence between US and European issues has resulted in the S&P 500 ETF (SPY -0.45% ) breaking out vs. the Vanguard FTSE European ETF (VGK 0.25% ). This is an encouraging sign towards favoring US Equity markets over European Equities.
This ratio just broke out from a pattern widely known to be a Cup and Handle pattern, which favors US stocks.
Overall, Europe’s outperformance vs US lasted just about 9 months from mid-2022 into 2023 before US began to regain strength.
Given that this ratio has now advanced back to new all-time highs, SPY should be favored over VGK. (SPY also broke out vs. FEZ, the Euro STOXX 50 ETF.)
S&P 500 vs Vanguard FTSE European
NFLX breakout should lead to a test of all-time highs
Netflix has just successfully exceeded the minor consolidation which had been intact for the last couple months. This is a bullish technical development and bodes well for NFLX 1.04% pushing back to test all-time highs just over $700
While Fall 2021 peaks very well might result in near-term consolidation when reached, NFLX looks to have no real resistance at present levels after this week’s breakout.
At a closing price of $669.68, a rally up to test $700 would represent a bit more than 4% in the weeks to come.
NFLX was added to my UPTICKS list back on 1/29/24, and still looks to be a viable candidate which could start to show a bit better relative strength due to this week’s breakout.
Netflix
