US Equity trends remain bullish and mildly overbought after the last four out of five days of gains and still appear likely to push a bit higher this week before finding some stronger resistance based on price and time into mid-July. Minor evidence of strength is apparent from Consumer Discretionary, Financials, Industrials and Materials, but still largely hasn’t proven broad-based enough to suggest a bigger period of outperformance from these groups has gotten underway. This week contains a possible market-moving event as June CPI is being released on Thursday. Overall, cycles, seasonality, and ongoing strength in Technology argues for a bullish stance in US Equities into at least mid-July before some backing and filling. SPX targets could materialize initially between 5650-5750.
Similar to last week, no meaningful change has resurfaced to the thinking that stock indices have a bit more to go on the upside before some consolidation gets underway. At present, trends and momentum are bullish and higher prices are likely up to 5650 as a minimum upside resistance target to the current rally.
Sector rotation into Industrials, Materials and Consumer Discretionary seems to be happening, with the only major technical overweight to be disappointing vs. expectations being Healthcare.
Meanwhile, Emerging market Equity indices appear to be trying to stabilize after an initial difficult period from mid-May when the US Dollar rose into June highs. (I’ll discuss this in greater detail later in today’s report)
Given that CPI swaps show a possible 3.07% print for June CPI vs. consensus expectations of 3.10%, it’s thought that the recent economic cooldown which produced lower US Dollar and Yield trends very well might continue.
Overall, it’s hard growing too negative given the ongoing trend of higher highs and higher lows with an absence of meaningful DeMark-based exhaustion signals during a time where cycles are pushing higher and investors’ level of bullishness seems constrained.
Until price can retreat to violate last week’s lows (approximately 5446 in ^SPX) it’s right to continue to expect higher Equity prices as well as higher Treasury prices (anticipating a pullback in Treasury yields)
I suspect that next week might bring about greater proof of a stalling out in prices than this week. Below is the daily SPX trend showing this ongoing bullish trend.
S&P 500
Emerging markets look relatively attractive as US Dollar decline gets underway
The recent slowdown in Employment growth shown last week has begun to have a greater effect in the US Dollar turning lower, and DXY fell to new three-week lows last week following its test of triangle resistance.
It’s thought that Emerging markets could benefit on a declining Dollar, and EEM, the iShares MSCI Emerging Market index fund, likely could begin to show some outperformance.
The chart below highlights a relative ratio of EEM vs. IDEV (iShares Core MSCI International Developed Markets ETF) which officially broke out of a two-year downtrend last month.
This should benefit EEM’s outperformance which began on an absolute basis in late April with EEM’s breakout above $42.
This weekly chart of EEM vs. IDEV (shown below) looks very likely to continue higher and bodes well for additional relative strength out of EEM at a time when the US Dollar has begun to reverse course to the downside.
Given that US Economic data has recently started to show more evidence of cooling, a temporary pullback in interest rates and the US Dollar which should precede the Federal Reserve starting to cut rates, should be positive for Emerging markets.
EEM looks attractive as a diversified ETF of Emerging market country’s Equity indices, while Mexico’s EWW and China’s Equity ETFs like FXI and KWEB should bounce in the month ahead.
Technically speaking a rally has been underway in EEM since last October as part of a larger rally from the October 2022 lows. Upside technical targets lie initially near $46, then $48.85 which could provide resistance to this rally over the next 1-2 months. However, trends and momentum have turned more positive this year on EEM’s April 2024 breakout to the highest levels since 2022. I expect that following any minor consolidation this Fall, additional upside in EEM should be likely post the US Election.
However, given that TSM is the largest holding within EEM at over 9%, any hint of geopolitical rumblings later this year might have an adverse effect on both TSM and also EWT in a way that might serve as a headwind for EEM progress. At present, this doesn’t seem imminent.
Emerging Market ETF vs IDEV
Mexico’s Equity ETF by iShares (EWW) looks appealing after recent stabilization
Mexico’s EWW looks to be bottoming following its recent consolidation near an area of nine-month trendline support.
EWW initially began to fall following its Election results, but technically never showed sufficient deterioration to violate the intermediate-term uptrend from last Fall’s lows.
The area at $55-$56 provided good support on the weakness from April and EWW now looks to be turning back higher following its rise to new multi-week highs.
The two key initial areas of upside resistance lie at $63, then $64.10 (this latter resistance lines up near the late April 2024 prior lows)
Any ability for EWW to exceed $64.10 should result in a retest and breakout of April highs which could lead to $74 for EWW. Conversely, movement under $54.88 would postpone the rally, leading to an initial test of $52.43.
Overall, EWW looks appealing here, and I suspect that an oversold bounce is now underway.
iShares Mexico ETF
China’s Technology ETF (KWEB) also looks attractive after pullback to support
Not dissimilar to Mexico’s EWW, the KraneShares CSI China Internet ETF (KWEB) has now reached support following a steep slide since the middle of May.
Some of this decline did occur concurrently with a rise in the US Dollar index, as DXY moved higher starting with its lows on 5/15/24, rising into peaks near the end of June (6/26/24)
Following seven straight days of decline in DXY, China’s Technology ETF, KWEB has now begun to show evidence of stabilizing and momentum has started to turn higher.
I expect that an advance up to $29.80 is likely initially, followed by a possible retest of May 2024 peaks at $32.64. Weekly closes back above $32.64 would be very positive towards thinking a much larger advance can get underway which should reach a resistance zone at $36-$38.
Only if $26.75 is broken would an advance be postponed and might lead to a test of April lows near $25.34 before this turns higher. However, I feel that an upcoming US Dollar decline could help spark a larger rally at a time when many might have given up on China’s prospects and feel this was yet another false breakout attempt.
Comparatively speaking, KWEB looks far better technically than either FXI or MCHI as an ETF choice for Chinese Equities.
KraneShares CSI China ETF
