Short-term trends in US Equities remain bullish, and despite some slowing in the breadth and momentum that has taken place in the last few weeks, uptrends remain intact. Moreover, I believe Tuesday’s breakout bodes well for a likely challenge of all-time highs in Technology ETFs like XLK as well as possibly SPX and QQQ before a slowdown into mid-June. As discussed before, while a rally over February peaks arguably should happen this Summer, it’s hard to make a technical call for an immediate breakout. Meanwhile, the US Dollar has begun to move sharply lower, and it’s expected that US Treasury yields should also be on the verge of following suit. Precious metals, Emerging markets, and commodities can likely work well in the weeks/months ahead, given a falling US Dollar. Finally, Small-caps should be given some scrutiny here, given the pickup in relative strength in recent weeks. Overall, a push up to between 6000-6150 is likely for SPX, while QQQ should rally to 540 before some minor stalling out.
Tuesday’s breakout in NASDAQ, SPX and IWM bodes well for upside follow-through this week following the consolidation pattern since mid-May having been resolved higher.
As was discussed yesterday’s I believe that SPX’s move above 5943 sets up for a possible 100 point move higher into next week.
At present, Technology, Consumer Discretionary and Industrials look likely in leading the charge during the first week of June.
As shown below, Tuesday’s minor range breakout above 5943 is considered to be a technical positive that likely results in SPX pushing up above 6000 to 6050-6150 into early next week before finding strong resistance near all-time highs.
While all-time highs eventually should be surpassed, my feeling is that the combination of DeMark indicators, poor June seasonality, and some minor negative breadth and momentum divergence likely result in a slowing of this rally within a week.
Following some minor backing and filling between June 9th and June 18th, I suspect that a push back to new highs can get underway, which ultimately should lead to SPX reaching 6650 into this Fall.
S&P 500 Index
Technology ETF likely tests all-time highs into next week
As shown below, Tuesday’s rally in XLK is quite constructive and represents the first meaningful technical breakout in this ETF since its consolidation got underway in mid-May.
The move to test all-time highs is underway, I believe, and should help XLK push up to 242-243 over the next four trading sessions. ON, MCHP, FSLR, ENPH, and ANET all finished higher by more than 5% today, and Semiconductor indices like SOX look very close to starting to trend back higher vs Software and Tech Hardware given AVGO’s breakout back to new all-time highs.
Overall, Technology remains a technical overweight, and today’s move is a meaningful positive change from the pattern that began back on 5/13.
SPDR Select Sector Fund – Technology
Investment Managers have begun to show above-average Short positioning in the US Dollar, but DXY decline still looks likely
The US Dollar’s recent decline has caused Commodity Futures Trading Commission (CFTC) data to show the highest speculative short positioning since early 2023, and very well could grow further given possible slowing growth as Fed rate cuts build.
Note the degree of Policy uncertainty likely could remain a key overhang, but given the need to drive exports higher to balance the rising imports, seeing the US Dollar move lower in the near-term won’t necessarily be a negative, and gels with Treasury Scott Bessant’s short-term goals for Dollar and Treasury yield weakness.
Technically, my target for DXY lies near 93-94 on weakness in the months ahead and feel this possible weakness should bolster Emerging markets along with commodities. The 10-year chart of Net long exposure by Asset Managers since 2015 by Bloomberg (CFTC ICE US Dollar Index Asset Mgr. Institutional Net Total) has reached at least two-year lows as of this week.
Specifically, USDJPY looks likely to pull back to 136, while both EURUSD and GBPUSD have grown much more appealing technically in recent months and also can extend higher into August.
Overall, I expect that as sentiment gets more and more negative, it likely could serve to “Put a floor” into DXY from a contrarian standpoint, as pessimism creates an eventual buying opportunity.
This might also line up with the larger uptrend line in the DXY in recent years that seems to intersect near 94. At present, I expect another 5% lower in the next few months, followed by a rebound which might last into year-end.
The CFTC chart for Institutions (ICE US Dollar Asset Manager Institutional Net total) is shown below. It’s reached the lowest levels since 2023.
ICE US Dollar Asset Manager Institutional Net total
Russell 2000 ETF breakout likely helps Small-caps rally extend
As shown below, the iShares Russell 2000 ETF (IWM) has hit the highest levels on a weekly basis since three weeks ago, but has managed to successfully break out above the downtrend, which had kept this ETF’s downtrend intact from last November.
This is a bullish development technically and is being joined by some relative outperformance from IWM vs. the Equal-weighted S&P 500 (RSP) since mid-April.
Thus, most of the traditional Financial Media have not discussed that Small-caps have outperformed the broader market in Equal-weighted terms since the market bottom in April (when excluding the “Magnificent 7”).
I expect this outperformance likely continues into August, but might face a partial slowdown in June ahead of an eventual move in IWM back to $245.
Initially, IWM technical targets lie at $216, then $226.
iShares Russell 2000 ETF
