Wishing you and yours a healthy, happy, and safe Independence Day holiday !
US Equity indices are pushing back to new highs as the Economic data continues to come in on the weak side, and now looks to be finally starting to affect the US Dollar and Yields. Large-cap Technology showed particular strength, while in Equal-weighted terms, Materials and Industrials both outperformed Technology. Overall, cycles, seasonality, and ongoing strength in Technology argues for a bullish stance in US Equities into at least mid-July into and after the July 4th holiday which might last into July expiration before some backing and filling. SPX targets could materialize between 5650-5750 before any consolidation gets underway.
The rally to SPX-5650-5750 seems to be underway, as large-cap Technology continues to press higher as FSLR 0.19% , NVDA 1.98% , AVGO 6.33% , and ENPH 8.53% all stoked gains of more than +3.5% within the Sector SPDR Technology ETF, XLK 1.44% .
US Dollar and Yields both dropped sharply during Wednesday’s shortened session, as economic data missed expectations, coming in disappointing yet again.
Overall, I expect that my cycle composite along with early July bullish seasonality should provide a further runway for gains into mid-July.
Thereafter, I suspect that some consolidation/selling pressure might finally be required following a stellar runup.
However, after any pullback takes place, yet another rally back to new highs should be likely into mid-to-late August/early September which could mark a peak for Fall 2024.
At present, trends and momentum are bullish and higher prices are likely next week. The chart below highlights the breakout in SPX back to new all-time high territory.
Technical structure remains bullish and not too stretched and continues to show an attractive pattern of higher highs and higher lows.
Sector rotation into Industrials, Materials and Consumer Discretionary seems to be happening, and it will be important for Healthcare to also begin a bounce in the near future.
S&P 500 Index
Continuing Claims has broken out to the highest levels in years
Wednesday’s economic data continued to paint a more subdued picture for the Economy, with big misses in ISM Services, and Factory Orders while Jobless Claims came in on the high side at 238k vs. 235k expected.
However, it was the rise in Continuing claims that seemed to spark a big drop in the US Dollar along with spurring on some continued weakness in Treasury Yields.
As this chart shows since 2022, the act of having broken out above the former peak in 2023 does look bullish, technically speaking, indicating that we’re likely to see higher Claims in the months ahead.
This looks to be yet another data point which argues that the Economy could be starting to lose some steam, and should coincide with Treasuries rallying and the US Dollar falling.
While weak economic data should only coincide with strengthening stock prices for so long, much of this recent rally in risk assets has more to do with “bringing forward” the Rate cuts, which should happen as early as September.
Given the higher correlation numbers lately between Treasuries and SPX, weakening yields should continue to drive stock indices higher.
US Continuing Jobless Claims
Percent Within 20% of 12-month highs remains in good shape
S&P breadth indicators like “Percentage of Stocks within 20% of their 52-week (12-month) highs still lies near 80%, despite many investors complaining that Technology seems to be the only sector working.
This clearly is not the case, but it’s expected that this gauge will start to lift as more sectors begin to follow suit.
As can be seen on the left-hand side of this chart below, this breadth gauge began to plummet back in 2021 ahead of the Bull market peak for SPX on 1/3/22 as well as well ahead of the November 2021 peak for NASDAQ and DJ Transports along with most European indices.
This is a worthwhile chart to keep handy for those worried that markets might begin a bear market based on lack of participation.
At present, with nearly 80% of all stocks within 20% of their 12-month highs, a relatively high reading above 70% does not present much worry.
However, evidence of this dropping beneath 50% would certainly make for a more cautious view, and begin to study uptrends for signs of giving way in the larger benchmark indices.
Overall, this doesn’t look to be of much concern at the present time, and despite some minor breadth waning in recent months, the intermediate-term gauges remain in good shape.
S&P 500 Breadth – Percent Within 20% of 12 Month High
Tesla breakout should lead to an eventual move back to new high territory
This week’s TSLA 1.45% surge has been nothing short of extraordinary. Gains over the last three days have reached 24.77% as of Wednesday’s close, and volume has spiked to the highest levels on all three days since May.
As seen below, TSLA has exceeded the downtrend from 2021 which I initially had set as an upside target. I am raising my target on TSLA to $414 initially, with intermediate-term resistance zone found at $505-526, and then a plethora of confluence between $720-$753.
Overall, it’s important to point out that the entire 2.5 year bear market in TSLA took on a very choppy and overlapping pattern (See below) Thus, now that this stock has shown evidence of breaking out of this pattern, I fully expect that we’ll see a technical advance back to new all-time highs eventually.
In the short run, I do expect that TSLA might show some near-term stalling out near $255-$260 into early next week. However, it’s right to take an intermediate-term focus given how abruptly most momentum indicators have turned up while not having gotten overbought on weekly nor monthly timeframes.
TSLA will continue to be part of my UPTICKS list, even though I suspect some consolidation might be in order by late July. However, the intermediate-term picture looks bright, and has improved given this week’s surge.
Tesla
