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, my thoughts are that the next week could prove choppy and allow for some consolidation ahead of a move back to all-time highs. This would gel with weak seasonality trends for June, while breadth and momentum have slowed in recent weeks. 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 an area 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.
Tuesday finished stronger than price action over the last few days and market breadth came in about 2/1 positive as Energy, Consumer Discretionary and Communication Services all outperformed Technology.
There ended up being little technical proof of any kind of stalling out, and both ^SPX and QQQ 2.65% continue to inch closer to test former all-time highs from this past February.
While some of the short-term negative breadth and momentum divergence might result in a minor pullback next week, it’s difficult to have much conviction of a larger peak being near.
Sector rotation has proven to be a key theme for US Equity markets over the past few weeks, and sectors like Financials, Utilities, and Industrials have failed to keep up with the recent push higher in Technology.
Until/unless the minor trend from late May is broken, it is still right to stick with this trend as SPX pushes higher into Thursday/Friday of this week. While inflation data very well could serve as a catalyst, it’s going to be important to have proof of ^SPX undercutting 5921 to care about any minor reversal in trend.
SPX lies just below the bottom portion of this 6050-6150 resistance zone, but markets require some evidence of reversing trends before thinking any kind of meaningful pullback might occur.
My technical opinion is that any weakness next week should be complete into June expiration before some strong cyclical push higher into August gets underway. Thus, any selloff is running on limited time and might not prove to be too damaging.
It will be important to see how U.S. equities react to the inflation data in the days ahead. Bottom line, until/unless there is a break.
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 will likely prove short-lived and not too damaging ahead of a sharp rally up through July into August.
Energy is showing some evidence of DeMark-based exhaustion on weekly charts, though a final plunge into July would be helpful
Given WTI Crude oil’s recent short-term breakout of a reverse Head and Shoulders pattern, it’s important to see whether Energy is in the position to rally.
Overall, both trends and momentum are pointed lower for relative charts of Equal-weighted Energy (RYE 0.03% ) vs. the Equal-weighted ^SPX (RSP 0.41% ).
Moreover, structurally, this weakened just last week to the lowest level in three years.
However, there is a weekly TD Sequential “13-Countdown” exhaustion Buy Signal on weekly charts, which has directly followed a TD Buy Setup a couple of weeks ago. Note, this was part of a larger 9-13-9 pattern heading lower from early last year.
Thus, while many cycles point to WTI Crude selling off further into July-August timeframe before a bottom, any confirmed weekly buy signal might suggest that Energy could show some better relative strength following a lengthy period of underperformance.
At present, I’m not expecting meaningful strength from Energy. However, for those with a short-term timeframe of 3-5 trading days, this recent Crude breakout might result in a bit more bounce into next week from the Energy sector.
Overall, I suspect that this initial move higher might give way to weakness back to the recent lows, which could allow for an eventual weekly TD Combo “13 Countdown” signal to arise and join the TD Sequential signal. My expectation is that a bit more weakness will happen in the next month, and it still looks a bit early to bet on Energy.
However, from a time perspective, a bottom for Energy seems to be growing closer, and investors will want to give the Energy sector a bit more focus in the weeks to come, as an intermediate-term bottom could materialize this Summer based on cycles and DeMark.
RSPG/RSP
Biotech has also reawakened which has coincided with Small-cap outperformance
While Healthcare remains trending down relatively vs. SPX this year, there has been some minor technical improvement in both the Pharmaceutical sector as well as Biotechnology which is worth noting.
“Biotech” strength is important, as this subsector has largely been under pressure since peaking back in 2021. While Biotech moved sideways in neutral range-bound consolidation from 2022 into early this year after its steep drop from 2021 the movement in the last couple weeks looks to be helping this sub-sector gain some momentum.
As seen below, the SPDR Series Trust SPDR S&P Biotech ETF (XBI 2.43% ) has broken its downtrend from last November and has recouped the former lows from last April 2024. These are two positive technical developments that have happened over the last month which help to add appeal to this sub-sector.
My view is that Biotechnology is on a slow “road to recovery” and XBI likely rallies to $90.60 before facing some consolidation. An eventual move back to test last Fall’s peaks will take time, but the positive technical developments in XBI are the first signs of this ETF bottoming out after a difficult stretch in the last six months.
SPDR Series SPDR S&P Biotech ETF
Ethereum has finally begun to gain some technical strength
Tuesday brought about a very bullish move in Ethereum, as ETHUSD orchestrated a breakout above its range over the past week. This is quite bullish structurally for “ETH” and should lead this up to 3069 area in the short run.
Note, ETHUSD- 2750 was 50% of its prior high to low range, so exceeding this should result in a test of 61.8% retracement level directly higher. Today’s move is also resulting in ETHBTC breaking out again, which is bullish for the relative relationship of Ethereum vs. Bitcoin.
Overall, I expect ETHUSD to eventually climb back to test its all-time highs, which could happen into Fall of this year. At present, the near-term and intermediate-term view have improved and Ethereum looks likely to outperform Bitcoin in the short run.
I’ll be doing a video which covers Ethereum along with Bitcoin, Solana and others on Wednesday, so those who aren’t subscribed to “FSI-Pro” should contact Sean Farrell and Team.
Ethereum/U.S. Dollar
