Short-term trends in US Equities remain bullish but could potentially face some consolidation starting mid-next week. Market breadth has slowed a bit after a strong push higher in April, and there has been some evidence of defensive outperformance in recent days. However, price has not given any indication of breaking its uptrend, and until this happens, it remains right to stick with this trend. As mentioned yesterday, “Safe-haven” trades like Gold, Treasuries, Japanese Yen, and/or Swiss Franc have all shown signs of starting to bottom out, and these should all begin to turn higher in the back half of May. Overall, it’s been an encouraging rally for US Risk assets from early April, and despite the urge to try to sell into this move, there hasn’t been enough proof yet to justify that this rally has run its course.
Despite some impressive movement out of Utilities and REITS this week, sectors like Technology have thoroughly dominated performance over the past month. Moreover, this hasn’t been just “Magnificent 7” stocks, but Equal-weighted Technology, which has shown substantial outperformance.
I view this as a big positive for the months to come, even if a minor setback gets underway in late May. Sectors like Consumer Discretionary, Industrials, and Financials all appear like Overweights along with Technology. However, sectors like Utilities are also Overweights, technically and the Equal-weighted Utilities sector ETF (RYU) just made a new all-time high today.
As far as laggards, Consumer Staples and Healthcare have proven to be the worst in absolute terms, and I suspect that Energy will begin to underperform a bit more in the weeks ahead. Overall, the performance of all 11 Equal-weighted S&P 500 major Sectors looks very much like what should be happening in a Risk-on rally.
Invesco S&P 500 Equal Weight ETF
Market breadth has begun to slow following a sharp upward thrust
It’s important to note that following a very strong upward thrust in breadth from early April into early May, there has been some slowdown over the last couple of weeks.
As seen from this chart of the 10-period Exponential moving average of Advances/(Advances +Declines), we’ve seen some minor stalling out in Breadth after it’s reached a very high level. While this isn’t bearish per se, it does warn us to be on the lookout for any signs of a trendline break coming up in the weeks to come.
S&P 500 Index
Utilities has pushed back to new highs in Equal-weighted terms
Important to note that sectors like Utilities and REITS have begun to show some above-average strength in recent days.
Specifically, RSPU just hit new all-time highs today, and Utilities is leading Technology by over 500 basis points on a Year-to-Date basis in performance.
While many would argue that Defensive groups are certainly have not shown substantial strength vs the SPX over the last month (and I don’t disagree) it’s always important to note when a sector hits a new all-time high.
Of the defensive groups, Utilities remains the clear favorite and one to still overweight. REITS have also begun to trade better this past week, with EWRE hitting the highest levels since early April.
BATS:RSPU
Magnificent 7 ETF (MAGS 0.56% ) still likely to push higher into next week
Despite some late week stalling out in large-cap Technology (and specifically, and Magnificent 7 group) this still looks poised to push up into mid-next week without much trouble.
MAGS, the Roundhill Magnificent 7 ETF, has formed a triangle pattern following its open gap to start the week. Technically, this isn’t bearish and normally represents technically a continuation pattern. Overall, it’s likely that MAGS will resolve this move by pushing higher early next week, similar to QQQ.
However, this might prove to be the “final” push up from the rally from early May (and potentially from early April), so it will be worth keeping an eye on this if/when it nears $55-$56 on further strength next week. At present, the consolidation in stocks like META -0.64% , AMZN 0.01% hasn’t done much damage technically speaking. These remain quite positive and should push higher to break this week’s highs as next week gets underway.
Roundhill Magnificent Seven ETF
