Short-term trends are turning bullish as SPX and QQQ have finally broken out of their respective triangle consolidation patterns, which were established roughly three months ago. The US Dollar has also broken down, while Treasury yields could trade largely range-bound in the near term as the correlation between Treasuries and Equities is partially unwound. Equal-weighted S&P 500, DJ Transportation Avg., DJIA, and Russell 2000 have not yet achieved the breakout seen in SPX and QQQ, and this likely takes some time. However, sentiment regarding tariffs and their possible negative implications for the US Stock market has gotten quite bearish for both the Equity and Bond markets in recent weeks, which arguably is a positive. While seeing a broad-based rally across Equal-weighed indices like RSP would help in having more conviction on the longevity of this rally, at present, it’s right to be long, expecting SPX to push up to 6300.
If tariffs are a problem, someone forgot to tell “Mr. Market.” The breakout in SPX and QQQ has coincided with some of the worst retail sentiment I’ve seen in over six months and gives me conviction that higher prices happen at a time when I least expect it.
Thursday’s rally occurred on roughly 3/1 breadth and 1% moves out of Discretionary, Materials, Energy, Technology, Financials, REITS, and Consumer Staples. While there could be a temporary break in the correlation between Treasuries, Bitcoin, and SPX (as near-term trends in both Treasuries and Bitcoin don’t appear as positive yet), I’d rather just trust the Equity move for now, expecting Stock indices to push up into the end of February.
As shown below, SPX has officially broken back out over 6121, which I felt was important towards steering the market higher into March. This has happened also on QQQ’s close over 534 and should be important in fueling higher prices in the weeks ahead.
S&P 500 Index
US Dollar breakdown has kicked off a meaningful decline for DXY
Thursday’s breakdown in DXY is a big technical negative and should spur on a further decline, which likely gets down to 104 initially before potentially failing to test last Fall’s lows
Specifically, the act of violating early February lows and January’s low close should result in the start of some downward acceleration for the US Dollar.
My near-term technical targets for currencies are as follows:
DXY- US Dollar index- 104
EURUSD- 1.07-1.08
GBPUSD- 1.29
USDJPY- 148.6, then 140
USDMXN- 20
USDCHF- 0.8867
AUDUSD- 0.65-0.66
U.S. Dollar Index
AAII Bears have reached the highest levels since November 2023
Incredibly enough, despite the resiliency in the US stock market of late in ignoring the tariff threats, the Bulls-bears spread of the American Association of Individual Investors has just contracted enough that Bears are nearly a 20 percentage point spread over Bulls in the most recent poll.
While this is just one retail-oriented sentiment poll, it mirrors what other polls such as CNN’s Fear and Greed are showing along with J.P. Morgan’s Global Equity Sentiment indicator lately, which both have shown some notable contraction in bullish sentiment lately.
As shown below, the spread between bulls to bears has declined to nearly the lowest levels since 2023. While some are talking about high retail participation, my own studies and analysis of a few different sentiment polls lead me to believe that there is no speculation or froth in this market at this time.
While the Retail sentiment looks worse than the Institutional sentiment, it’s unusual to see levels of this Bull-Bear spread reach levels that were seen near October 2003 when SPX had peaked in July 2003 and lost over 10% into late October 2003.
The fact that SPX is now back at new highs and sentiment remains extremely guarded likely should help to bolster stocks as many attempt to chase this rally.
AAII
Silver looks preferable to Gold after recent underperformance
While Gold remains at/near all-time highs, Silver has diverged sharply in recent months and has not shown the same degree of strength.
I expect this should change given the renewed appetite for Emerging markets on a US Dollar decline, which helps China rebound.
This ratio of Silver to Gold has just signaled evidence of DeMark-based exhaustion, which I suspect can help Silver begin to show some mean reversion in the weeks and months to come.
Thus, while both Gold and Silver are attractive at this time, it might be worth revisiting Silver which might stand to be a better risk/reward in the months to come.
This ratio highlights the ETF’s of Silver from Ishares SLV vs. GLD which shows this ratio having fallen to 2024 lows.
However, this TD Buy Setup on this weekly spread of SLV to GLD looks important and positive towards something that might now help Silver to begin strengthening relative to Gold.
Overall, I expect Silver to push higher to the high $ 30s initially and feel its recent underperformance is worth favoring Silver in the near term for a snapback higher.
SLV/GLD
