Despite the ongoing volatility, last week’s volume and price action suggested a good likelihood of a short-term low in place for US stocks, which might now be followed by a push higher in a “2-steps forward, one-step back” type process into May. Multiple technical factors came together last week to show an inflection coinciding with breadth and volume capitulation at a time when sentiment had reached the most negative levels in years. Technology’s rebound from support last week is certainly a reason for optimism, and along with strength in Financials, it should be able to drive markets higher in the months to come. Thus, while trends and momentum remain negative from mid-February, seasonality and cycles show a rally developing following signs of tariff fatigue from Equities, and breadth has improved following the best one-week performance in SPX since 2023. Going forward, SPX 5500, QQQ-466.43 and DJIA-40,661 remain key areas to exceed to have confidence, and these likely are tested and exceeded some time this week. At this point, it remains premature for me to consider this a bear market, nor that the US Economy should enter a recession.
The pattern below remains important to concentrate on, given that prices largely have grinded sideways in recent days following last week’s initial surge off the lows.
Breadth has proven favorable, and it’s been encouraging to see sectors like Financials make strong comebacks to join Technology. It’s also been encouraging to see breadth largely expand pretty favorably in recent days, along with evidence of Treasury yields trying to peak out.
As shown below, QQQ has grinded sideways in recent days as part of its intra-day triangle pattern after last week’s sharp rally. 465 is the near-term area of focus, which I expect to be challenged and exceeded.
When this happens, the US Equity rally will begin to accelerate and test and briefly exceed its downtrend from Feb near 468. March lows for QQQ were 467, so this entire area, 465-8, will take on importance. However, the act of getting above is a big positive for the market structure. 471 is a target lining up with 50% of the downtrend from Feb, which I feel has importance on this first move off the lows. For support, 448 looks important and can’t afford to be breached without postponing any rally. However, this is an alternate scenario.
It’s thought that a rally back above the peaks in early April is most likely into next week.
Invesco QQQ Trust
Gold and Silver likely push back to new weekly highs before a minor consolidation could get underway
Despite gold having taken over for the “Magnificent 7” as the most crowded trade in BofA’s latest Fund Manager Survey (FMS) report, technically both Gold and Silver are readying for yet another pushback to new monthly highs.
Charts of GLD -0.56% below (SPDR Gold Trust) might push up to $304 without much trouble, while SLV 0.65% (Ishares Silver Trust) could reach $30-$30.44.
However, given the sharp rally from early April, it’s likely that some consolidation might happen starting in about a week from higher levels. This might retrace 38-50% of the rally since 4/4, but ultimately find strong support before a move back to new monthly highs.
Overall, both GLD and SLV are attractive along with the precious metals mining stocks on an intermediate-term basis. However, for those with short-term timeframes, there looks to be a rally over the next 3-5 trading sessions which might then stall out and retreat in the weeks to come.
Such a pullback should prove short-lived, resulting in a very attractive risk/reward situation to buy dips into May. From an Elliott perspective, the fifth wave of this most recent rally from early April looks to be getting underway, and it should carry the price fractionally higher into the end of the week.
SPDR Gold Trust
US Dollar bounce lacks “legs” Likely to stall out near 100.50 and turn back lower to new lows
The last couple of days have engineered the start of a minor bounce in the US Dollar after a very sharp decline in recent months.
Following DXY’s break of 2024 lows last week, which took DXY to its lowest levels since 2023, many speculated that countries might abandon the US Dollar and begin offloading US Treasuries in retaliation for American tariffs.
However, there might be a few arguments that refute that view:
- According to COFER Data, at the close of 2024, roughly 58% of global reserves remained dollar-based.
- Based on the NBER paper (National Bureau of Economic Research), the majority of global output still comes from economies operating under the broad umbrella of the Dollar bloc (Group of countries whose currencies are anchored to USD).
- Moving away from the US Dollar might risk the Administration’s wrath in the form of sanctions or tariffs.
Overall, the recent BofA April Fund Manager Survey detailed that 61% expect the US Dollar to depreciate in the next 12 months, the most since 2006. However, weekly momentum and technical deterioration of chart structure suggest that further declines are likely in the months ahead.
The bottom line is that while a bounce to 100.5 is certainly possible, I am expecting a reversal back lower over the next few weeks and that DXY likely could get down to the mid $90s in the months ahead before a more serious bottom is in place.
This Dollar weakness arguably should continue to be good for Emerging markets, gains in the Yen, Sterling, and Euro along with many metals. However, DeMark-based weekly exhaustion looks to be 7-9 weeks away from any type of meaningful low.
Overall, one should see this recent bounce as proving short-lived technically, representing a chance for investors to favor further gains in many of “the Majors” against the US Dollar.
Movement back under 99 is likely in the months ahead, which might drive DXY down to 96 before much support.
U.S. Dollar Index
Consumer Discretionary generating similar signals that Technology did last week in its relationship with Consumer Staples
Similar to the relative chart I showed last week with ratio charts of Technology generating buy signals vs. S&P given DeMark-based exhaustion, there are now similar signals in place with Consumer Discretionary vs Consumer Staples in Equal-weighted form (RCD vs RHS).
As shown below, the ratio for RSPD vs RSPS has pulled back sharply in recent months but has successfully held the larger uptrend line on this ratio chart.
Moreover, TD Buy Setup signals are now present for the first time on weekly charts since a TD 13 Sequential sell signal happened the week of the market peak in mid-February.
As weekly charts show, after five sharp weeks of decline out of 8 from mid-February, the ratio of Discretionary to Staples lies right at important intermediate-term support.
Along with technology having formed a similar signal last week, this TD Buy Setup right at support helps to give confidence to the idea that US stocks are bottoming out. Furthermore, the path of least resistance should be higher in the months to come.
RSPD / RSPS
