US Equity indices are starting to move higher in tandem, with ^SPX 0.40% , RSP 0.19% , DJIA 0.35% and also QQQ 0.80% all showing gains of roughly +0.45%. Small caps, however, have begun to lead the charge after last week’s breakout, and both Regional Banks along with Biotechnology should be beneficiaries of a Small cap rally. The Yield curve has begun to steepen on an increased likelihood of a Trump presidency, and US Dollar along with 2-year yields look to move steadily lower in the weeks ahead. While there could be a minor shift to Value over Growth as Energy and Financials continue the recent strength, I feel this proves short-lived before Growth reasserts its strength. Overall, it’s still right to favor risk assets given that the Equal-weighted S&P 500 showed its hand last week and a more broad-based rally has been getting underway. While some consolidation might occur after July expiration, I don’t feel it should prove too long lasting, nor severe before pushing up into late August. SPX likely can reach 5800 without many issues, and it remains difficult to bet on any serious mean reversion in Technology without more proof.
As discussed late last week, the mean reversion higher in the broader market looks to be underway. This started initially with Consumer Discretionary and Financials strength but has begun to spread to Industrials, Materials and parts of Healthcare.
As charts will show later in this report, Small and mid-caps have begun to outperform and this has been a positive influence on Regional Banks and Biotechnology.
However, the first chart below shows the DJIA having just pushed back above May’s all-time high close of $40,003.60 to hit a new all-time high today.
While some investors might not discuss the DJIA given its cap-weighted issues, it’s certainly a very relevant index with broad-based representation across many sectors. When DJIA confirms movement to new all-time highs to join SPX and QQQ, it tends to give the idea of a broad-based rally more credence.
In the last five trading days, stocks like AMGN -2.75% , GS 0.23% , HD 0.67% , UNG -3.35% , and CAT 0.11% have all risen more than 5% to help DJIA push back to new highs.
Overall, my target for DJIA is between $41,400 and $42k, and I believe that $42k is possible between now and September before a mild correction into election time.
Thereafter, DJIA should begin to push back higher to new highs into next Spring. This Symbolik chart below shows the DeMark indicators overlaid on the weekly and highlights DIA 0.21% . This exhaustion count remains at least 3-4 weeks premature to form any kind of meaningful signal, but this might line up perfectly with a push higher into August, and might target $42k.
Dow Industrials SPDR
Regional Banks also have broken out given Small-cap strength
Last week’s breakout in many sub-sectors also proved beneficial toward the Regional Banks which had been trending down largely since late 2021 before some minor stabilization began last year.
However, last week represented an official breakout for KRE 1.94% which reached the highest levels of 2024 today and looks to have jumpstarted its move to the low to mid-$60’s.
While last week’s Bank earnings largely proved underwhelming, this move in Regional Banks is helpful for the Financials sector and has helped XLF -0.35% push back above March 2024 peaks to new all-time highs.
Overall, KRE likely advances initially to near $56.75, but eventually should move higher to near $62, which approximates the 61.8% Fibonacci retracement level of the prior decline from 2021.
SPDR S&P Regional Banking ETF
Biotechnology has also begun to break out, and XBI is attractive technically
The liftoff in Small-caps has also been helpful to Biotech within Healthcare, which has largely been neutral since mid-2022.
Charts of both IBB and XBI have pushed sharply higher in recent days, and XBI is preferred between now and September given its Small-cap composition.
Charts of XBI are shown below and show the initial breakout in February of this year experiencing severe consolidation before pushing back higher over the last week.
Initially, a test of $104 looks likely which should be followed by strength up to $118. This level approximates a 50% retracement of the entire decline from 2021 and looks quite important technically speaking.
Biotechnology likely can rally over the next 4-6 weeks before much consolidation begins, but it’s thought that the recent uptick in relative strength out of Biotech and many Healthcare Services stocks should help Healthcare begin a rebound after a difficult few months for the broader sector.
XLV -0.27% , with its heavy weightings in JNJ 1.01% , UNH -1.31% , LLY 1.80% , MRK -9.30% , ABBV -0.10% (which are all greater than 5% holdings), just reached a new all-time high weekly close last week. However, the Equal-weighted Healthcare ETF (RYH) has some work to do before reaching this achievement.
Below shows the Small and Micro-cap dominated Biotech ETF (SPDR Series Trust S&P Biotech ETF- XBI 1.19% ) which should rise to $118 in the months to come.
SPDR S&P Biotech ETF
