The US equity rally over the last nine of 11 days has been constructive enough to think a move back to new highs can happen into September ahead of any seasonal Fall correction. The Equal-weighted SPX has already pushed back to new all-time high territory coinciding with the breakdown in the US Dollar and Treasury yields. Furthermore, market breadth remains constructive and Sentiment is not yet bullish enough to mark a larger market peak. Cycles show strength into mid-September in both Equities and Treasuries before a selloff takes hold, and sectors like Financials and Consumer Discretionary have been instrumental in serving as a “tailwind” for Equity gains at a time when Technology has been a bit wobbly. Overall, unless Technology starts to roll over in bigger fashion or the economy starts to weaken at a much faster rate, it looks right to stay bullish past Labor Day and expect any weakness into the Jackson Hole meeting likely proves short-lived.
I’ll echo what I wrote yesterday, as I feel this summarizes my current thinking: “Overall, Equities likely are entering a tougher seasonal stretch as August comes to a close next week, but at present, it remains difficult to say with a lot of conviction that any larger pullback is upon us.”
I’ll abstain from discussing Economics or Fed policy and just concentrate on technicals in tonight’s report. Overall, both US Dollar and Yields plunged today while Equities snapped back to recoup most of Thursday’s decline on very positive market breadth.
That’s a big positive and should set the stage for a push back to new highs into September. While I worry about the longevity of this rally if/when SPX arrives at 5700, Friday’s price action is a clear technical positive and keeps this current rally intact.
As shown below, the wave structure for SPX could be possibly seen as follows:
S&P has officially formed four waves out of five and is now embarking on the “final” push higher into September ahead of a seasonal correction.
I feel that bullish sentiment that materializes specifically given the Fed pivot at this stage of the rally likely will prove wrong between early September and November. However, at present, the path of least resistance remains higher, and it’s right to stick with this trend, for now.
AS shown below, SPX is set to break Thursday’s peaks as well as July 2024 peaks which should happen into next week. However, with warning signs starting to crop up, it’s important not to let Friday’s Jackson Hole speech translate into thinking that the 5700 area in SPX would constitute a good short-term area to get long. In actuality, I feel that this move might be running out of steam. For now, another 75-100 SPX points look probable on this rally, and this should also translate into Treasuries extending gains further into September.
US Dollar nearing its first meaningful level of support
US Dollar is nearing a very important area of support which I expect to mark a trading low sometime in the next 1-2 weeks and then allow a pretty good bounce to unfold. Note, this might also happen in Treasury yields following a pullback to new monthly lows.
100.61 for DXY is key and while trends are very sharply negative, and “should” allow for further intermediate-term weakness, we’re now seeing both daily and weekly DeMark indicators line up in producing Counter-trend exhaustion, which I always find to be important particularly when meaningful lows are being challenged.
Thus, DXY is nearing support and if my thesis is correct, SPX likely peaks slightly above 5700 coinciding with Dollar and yields both making temporary bottoms next week, exactly as Fed has pivoted and many will read as dovish. However, the opposite likely happens as positioning and sentiment will be exacerbated following a very strong move right at lows.
Treasury yields trading in a Triangle and might have one more pullback to new monthly lows before bottoming
US 10-Year Treasury yields are in triangle formation and don’t show as much immediate certainty as to the next move, whereas the US Dollar looks closer to a low. Yields very well could allow for one “final” pullback to test and break Aug lows which would help to complete their current pattern. Key here would be any violation of 3.76 which would serve as confirmation of a downward break to new monthly lows. If this happens, I expect TNX goes to 3.60, maybe 3.55 before bottoming in September. Conversely, if 3.89 is exceeded, then TNX goes to 4.10-4.14, with 4.14 being max, given wave structure. I am favoring long Treasury positions, and expecting this triangle should be violated by a move to the downside. The daily ^TNX -1.42% chart below highlights these areas of importance, and I feel that more answers will be known into next week.
Tesla should start to spike higher to test July peaks
Many stocks making similar patterns as TSLA 4.67% in having carved out four waves thus far and should be headed higher into next week. My target near-term on TSLA is from 234 up to 237, and then I feel this marks a pretty good near-term area of resistance (meaning this uptrend will stall and might reverse in Sept briefly).
However, momentum has improved a lot since the April lows and MACD is still positive and pushing higher and I believe TSLA has a lot of upside on an intermediate-term basis with the current hype surrounding the Robotaxi. For now, I think another $15 higher in price might mark some resistance, but I will be watching. This also could line up with SPX 5700-5750 and an upside zone to watch carefully.
