I’ll be on Fox Business with Maria Bartiromo tomorrow, Tuesday, June 25th at 8:10 am
S&P and QQQ have now sold off for three straight days, while the Equal-weighted S&P 500 and DJIA have rallied for five straight days. Thus, it remains an unusual market, but ultimately it has fared better than what the major averages reflect in recent days. There’s been some definite evidence of strengthening in Financials, Healthcare, Discretionary, Energy and Communication Services over the last week despite the SPX falling, and this is helping to kick off a broad-based rally, which will become a bit more noticeable once the pullback in Technology runs its course. At present, US Dollar and TNX look to be on the verge of large declines into August, and I suspect that a rally back to all-time highs should get underway into July which shows more evidence of participation. Overall, the recent SPX and QQQ declines should prove temporary and likely conclude this week.
Equal-weighted S&P 500 looks to have broken out following five straight days of gains
As shown below, Invesco’s Equal-weighted S&P 500 ETF (RSP) has rallied now for five straight sessions and just reached the highest levels since the final day of May.
This is encouraging towards thinking that a broad-based rally is starting to happen, and I would gain conviction once RSP can close above 168.
For now, it remains important to study Equal-weighted market gauges like this as the US stock market has proven more resilient than what the SPX has reflected in recent days.
Invesco S&P 500 Equal Weight
SPX likely finds support near 5400 while QQQ should hold 468-471
Three straight days of selling pressure for SPX has happened during a time when the DJIA and Equal-weighted SPX have rallied. This daily chart of SPX shows that despite this minor weakness since late last week, very little evidence of any real technical damage has occurred.
I expect SPX should find support simply because stocks like AAPL and NVDA which make up more than 10% of SPX are nearing support. Furthermore, Technology based sub-sectors like Semiconductor & Semi Equipment are nearing support.
Furthermore, many in the financial media continue to discuss the Tech selloff while not mentioning the degree that sectors like Financials, Discretionary, Healthcare, and Industrials have begun to snap back.
Bottom line, I don’t expect much further weakness in SPX, and prices could bottom over the next couple days near 5400, while QQQ finds strong support at 468-71.
S&P 500 Index
I discussed these reasons for optimism last week, and I’m repeating today for emphasis.
Reasons why our minor selloff shouldn’t grow too severe and could be complete by early next week:
- Elliott-wave patterns look overlapping and choppy on hourly charts, not severe weakness from the high in an impulsive five-wave decline on heavy volume and negative breadth
- RSP along with DJIA did show minor technical buy signals relative to SPX which got underway late this week. However, the trends in SPY remain quite strong, thanks to Technology. Furthermore, without more evidence of technology weakness, I suspect that SPX very well could outperform RSP until the US Election.
- DeMark-based counter-trend exhaustion failed to trigger any kind of weekly “13 Countdown signals” (Sells) at the peaks this week. While Daily signals are apparent on SPY and QQQ, neither is confirmed, and weekly signals will require at least another two weeks of rally before any decline gets underway.
- There remains no evidence that Tech’s waning late this week represents anything more than just a few days of consolidation, as opposed to a bigger peak for Technology.
- Sectors like Consumer Discretionary, Financials, and Healthcare all showed progress this week, and sectors like Industrials look to be on the verge of turning back higher after nearly two months of consolidation.
- Interest rates and the US Dollar both “tipped their hands” on the decline into early June which turned the technical patterns for both bearish. A drop to new monthly lows should happen in the weeks ahead.
- Sentiment has turned a bit more positive than a week ago, but not nearly as optimistic as what would be required to expect a peak in Stock indices.
- Seasonality remains positive in Election year Junes and Julys going back since 1950 with median returns in both months above 1%.
- Trends have not been broken for either SPY, nor QQQ and until at least minor evidence of a pullback appears, it’s difficult to bet against the US Stock market.
Biotechnology looks to be breaking out
Ishares Biotechnology ETF (IBB) broke out Monday, surpassing former May and June highs to reach the highest levels since late February.
Stocks like ALNY, MRIM, NRIX, and SRPT were all higher in the rolling five day period by more than 30%.
If IBB can close the week higher than $139.81, this would represent the highest weekly close since early 2022.
Overall, I like Biotech to continue its recent rally, as this recent burst of strength is happening during a time of strong seasonal gains for Healthcare.
My upside technical target for IBB lies near $148. (IBB closed Monday 6/24 at $139.96.) At present, IBB is preferred over XBI , the SPDR Series S&P Biotech ETF, which is comprised of 80% Small and micro-cap names, and is underperforming the IBB over multiple timeframes.
iShares Biotechnology
Healthcare seasonality bodes well for gains in July
With one more week to go in the month of June, and some recent evidence of Healthcare “kicking into gear”, it’s proper to study the seasonality of Healthcare to examine whether this sector makes sense as one to overweight.
Technically speaking, I like what Healthcare has done lately as the SPDR S&P Healthcare ETF (XLV) has reached the highest levels since late March. Both Pharmaceuticals and Biotech have taken the lead lately, while the Medical Devices and Healthcare Services stocks likely depend on some additional signs of long-term interest rates starting to turn down a bit more quickly.
Overall, Healthcare is in a sweet spot for seasonal gains, as this sector has been higher every July of the past 10 years except 2019. The average return of XLV over the last 10 years has been +2.84%, the highest of any month except November. June also has been higher for seven of the last 10 years.
Healthcare Sector
Semiconductor Stocks should be close to bottoming out
VanEck Semiconductor ETF (SMH) has pulled back sharply for three straight days, but now lies right near meaningful uptrend line support.
I expect that NVDA’s recent pullback is close to support, and that this recent decline in Technology as a sector has not proven too meaningful to avoid.
Overall, I like SMH as a technical risk / reward with price having fallen to near $255. This area lies near a key two-month uptrend for SMH and should provide some stability in Semiconductor shares in the days ahead before this group starts to turn back higher.
While DeMark-based exhaustion signals are now present on weekly charts of SMH, they haven’t yet been confirmed and would require a Friday closing price under $240.36 on 6/28/24, or under $252.23 by the following Friday’s close on 7/5/24. Additionally, monthly charts are early to showing any type of confluence of exhaustion that might align with the weekly charts and these might require at least another two months of gains. Thus, in plain English, it looks early for DeMark indictors to signaling any kind of peak (based on my own personal interpretation of how I use these).
Until some additional evidence emerges of Semiconductors (as a group) starting to show more meaningful evidence of trend deterioration, this group looks promising on this recent selloff. Upside targets on a rally back to new highs could initially materialize near $287.
VanEck Semiconductor ETF
