US Equity indices look to have bottomed following Monday’s 1% rally to multi-day highs in SPX and QQQ led by strength in Technology. Small, and mid-Caps could outperform in the weeks ahead, while other Defensive groups like Utilities and REITS have begun to show more evidence of turning higher. Overall, given that Semiconductor stocks managed to regain more than 50% of last Friday’s losses, this snapback in Tech is seen as a good sign. SPX likely pushes higher to test and exceed 5669, the all-time highs from last Tuesday, while QQQ should surpass its intraday peak from 7/10 of just over 503.50.
Following most major US Equity indices having pulled back sharply into an area of trendline-based support late last week, Monday’s early snap-back rebound makes perfect sense.
Technology led the rally higher both in equal, and cap-weighted form, and other important sectors like Healthcare showed important participation.
Small and mid-caps both showed stronger performance off the lows than SPX and QQQ did Monday, and the daily chart of IWM, the IShares Russell 2000 ETF, is shown below.
Overall, this minor consolidation in IWM following its recent breakout makes this quite attractive from a technical risk/reward perspective.
Gains look likely up to $244 from its current $220, a level that roughly aligns with all-time highs for IWM. As discussed last week, the strength of the move in IWM relative to SPX was so powerful that it likely should lead to additional near-term outperformance for Small-cap shares.
Bottom line, while this might require some consolidation between September and November before pushing higher yet again, I expect IWM to show absolute and relative strength over the next 4-6 weeks.
REITS continue to look like an attractive sector from a mean reversion standpoint
The breakout in REITS, as seen both on a cap-weighted and equal-weighted basis has advanced to the highest level in at least a year.
As shown below, following a lengthy two-year period of sideways consolidation, the SPDR Real Estate ETF (XLRE 2.12% ) has closed at the highest levels since February 2023 and nearly as high as former levels from September 2022.
This is bullish price action, signifying a breakout of the larger consolidation range over the last couple years. I raised my technical ranking on REITS last month to an Overweight based on the combination of near-term structural improvement along with hugely negative investor sentiment on the REIT sector. (BofA’s July Fund Manager Positioning report showed REIT exposure at a nearly -2.5 standard deviation from the mean, signifying larger than normal Underweight positions)
Technically speaking, I anticipate a push up to the high $40’s for XLRE.
REIT sub-sector strength favors Malls, Hotels, and Mortgage-backed REITS
This sub-sector overlay of the various REIT sub-sectors shows Malls, hotels and Mortgage-backed REITS showing much better performance than Office Property REITS and/or Shopping Centers.
While these Bloomberg indices can be lopsided percentage-wise given their holdings, it does appear like these leadership groups should be areas within the REIT space to overweight, vs. looking for mean reversion from the laggards.
Technically speaking, REITS like WELL 1.32% , SPR 0.83% , DOC 1.54% , IRM 0.51% , VNO 2.03% , CTRE 1.14% , WSR 1.52% , JLL 4.79% , EXR 2.60% , KIM 1.80% and VTR 0.57% are some of my favorites. Some of these are trending strongly higher while others are starting to make impressive progress off 52-week lows that argues for additional upside gains.
Gold and Silver’s recent setback might postpone an immediate move to highs
The last four days of selling pressure for both Gold and Silver look short-term bearish based on wave structure, and might allow for additional consolidation ahead of a push back to new all-time highs.
While Gold has only declined for four straight days, this pullback off the highs looks to have occurred in five waves lower. Thus, this looks to be part of a larger consolidation pattern that’s still ongoing before a push back to new highs gets underway.
Overall, this pullback might take the shape of an initial decline (which might have transpired over the last four trading sessions) followed by a three-wave bounce. Thereafter, another five-wave decline could get underway.
Bottom line, I remain bullish for a move back to new all-time highs for both gold and silver this Fall. However, between now and August, additional consolidation looks increasingly likely.
Gold should not violate June lows on any further consolidation. Furthermore, any weakness into August should make this quite appealing to buy dips for a meaningful push back to new highs.
Gold futures might revisit $2,300 but look doubtful to violate this level in the weeks to come ahead of a move higher to at least $2750.
Copper’s break of June lows should postpone its rally until August
Copper’s break off June lows also postpones an immediate move higher for Copper, and the deterioration in both precious and base metals looks to have happened in the last week.
Given that $4.3290 held in Copper ahead of a bounce back to near $4.70, the subsequent break of $4.3290 looks to be a short-term negative.
Overall, I can’t rule out a quick move down to $4 or even $3.85. However, I suspect that this takes the shape of a three-wave decline and should be followed by a rally back to new highs for 2024 into October.
Cycles call for Copper to turn higher from August into October, and I suspect that the weakness in Copper might mimic the pullback in many precious metals before both start to stabilize and show some strength into this Fall.
The decline in the US Dollar and Treasury yields should be particularly bullish for the metals, and any further weakness should begin to make Copper appear like an attractive risk/reward.
