Short-term trends in US Equities remain bullish, and following last week’s breakout now lie within striking distance of all-time highs. While a rally over February peaks should happen this Summer, it’s hard to make a technical call for an immediate breakout given the minor slowing in momentum coupled with weak seasonality trends for June. Meanwhile, the US Dollar has begun to move sharply lower, while Treasury yields have stabilized in the short run. Additionally, precious metals, Emerging markets, and commodities are all areas of near-term focus and can likely work well in the weeks/months ahead, given a falling US Dollar. Overall, a push up to between 6050-6150 is likely for SPX, while QQQ should rally to 540 before some minor stalling out.
Monday’s minor gains still make the case for near-term upside this week, though a breakout above February peaks still should be unlikely right away. ^SPX 0.49% has successfully pushed above 6000, though it’s thought that 6050-6150 area should prove to be an effective resistance zone later this week.
Specifically, the combination of both seasonal tendencies, coupled with counter-trend exhaustion signals potentially appearing by late this week, should result in some stalling out in this rally.
Furthermore, sectors like Financials and Healthcare having weakened a bit in the short run has caused some drying up in breadth, despite Technology still showing good relative strength.
Overall, the above-average strength in Technology and signs of recent upside acceleration should help indices hold up into the inflationary data due later this week.
As shown below, ^SPX 0.49% lies less than 2.5% from all-time highs reached on 2/19/25. Breadth has begun to dry up a bit in recent weeks, as Technology’s rally has not been joined by important sectors like Healthcare, while significant sectors like Financials have also underperformed in the last week.
I suspect that the lack of broad-based participation might drive some further near-term breadth erosion this week ahead of a stalling out. However, for those invested in Technology, this still looks to have excellent prospects in the near-term and I believe can show better relative strength than much of the US stock market.
Until/unless the minor trend from late May is broken, it should be still right to stick with this trend a bit longer into Thursday/Friday of this week. The CPI, PPI data due out later this week very well could prove important as a catalyst given that it comes out near a time when DeMark exhaustion might be complete on daily charts of SPY and QQQ 0.65% .
S&P 500 Index
My two zones for possible downside volatility in the months ahead lie between 6/13-6/23 and then 8/9 into late September/Early October. However, it’s anticipated that any consolidation that occurs between late this week and June expiration likely proves short-lived and not too damaging ahead of a sharp rally up through July into August.
Technology breakout could help this sector outperform this week, ahead of a possible stallout
One chart, which many aren’t paying much attention to, centers on Equal-weighted Technology vs. Equal-weighted ^SPX 0.49% (RSPT 0.74% vs RSP 0.50% ).
As shown below, the act of Semiconductor stocks starting to kick into gear again has helped Technology achieve a minor breakout in relative terms to the Equal-weighted S&P 500 extending back to last Summer.
This is a technically bullish development for Technology and should allow for Technology to outperform between now and August.
However, in the short run, there is reason to suspect that Technology could show a minor stalling out by the end of this week.
This has to do with DeMark-based counter-trend exhaustion signals, which could be present within three days’ time. Additionally, similar to SPX, this looks to be the potential final leg up of this rally off the April lows from an Elliott-wave perspective, representing a five-wave advance.
Overall, while the short-term signals suggest a possible stalling out by the end of this week, the intermediate-term signals are quite positive, as momentum has begun to grow stronger and stronger on an intermediate-term basis. Furthermore, the intermediate-term breakout should eventually allow for a test of last Summer’s highs vs. RSP on a relative basis.
Bottom line, Technology remains a technical Overweight. However, there could be a minor stalling out in this sector which starts later this week. Pullbacks in Tech, if and when they occur, should represent buying opportunities following June expiration.
RSPT/RSP
China’s reawakened Equity market is likely to challenge March highs
Despite China’s CPI data having contracted in May for a fourth month, the Chinese Equity market has continued to push higher in recent weeks, given a weak US Dollar.
Moreover, despite the heightened tariff pressure, China’s improving trade balance might suggest that the external subsector is holding up better than feared.
Looking at data released over this past weekend, Exports rose less than expected in May at +4.8% vs. +6.0% anticipated. Yet, the resilience in exports along with the falling US Dollar have helped Chinese Equities to rebound.
As seen below, the iShares China Large-Cap ETF (FXI 0.46% ) has hit the highest levels since March, nearly three months ago. Given the recent acceleration and momentum improvement, I anticipate that FXI 0.46% should push higher to $38.31 and possibly $39 in the weeks ahead.
iShares China Large-Cap ETF
Small-caps have begun to kick into gear, yet Outflows continue
Despite the outflows from iShares Small-cap ETF IWM 0.53% , which totaled more than $1.62 billion in the last week, there has been continued signs of the Small-cap trade coming back to life.
Technically, the rally over mid-May highs was considered quite constructive technically. However, its pattern now resembles both ^SPX 0.49% and QQQ 0.65% which look to be in a stage 5 rally off the April lows.
IWM has largely kept pace with SPY 0.49% over the last two months, having risen more than 24% off the lows from early April. Moreover, IWM has outperformed the Equal-weighted S&P 500 off this past April’s lows.
Given that DeMark indicators remain 2-3 days early towards signaling possible exhaustion, I expect IWM to likely rally to $217 at a minimum, with upper resistance targets potentially found at $220. Following some consolidation, I anticipate that IWM 0.53% should begin a push up to challenge and exceed $230 on its way to $245.
This first $217 target approximates the 61.8% Fibonacci retracement signal of the selloff from last November into April.
Overall, gains look likely over the next 2-3 days ahead of a possible stallout in IWM, which should mirror a similar move from ^SPX 0.49% and QQQ 0.65% later this week.
Russell 2000 iShares ETF – IWM
