Equity markets have reached all-time highs (QQQ as of Tuesday’s close, ^SPX within 1%), but does this mean Sell? US Equity trends remain bullish, and QQQ has just hit new all-time highs as of Tuesday’s close, while ^SPX is within 1% away. Reaching all-time highs might prove to be the first real technical test for US Indices. However, given the lackluster sentiment and evidence of improving sector rotation, it remains difficult to expect a meaningful selloff without much technical proof.
The big positives for Tuesday involve the breakout in Financials, as seen by XLF (shown later in this report) along with signs of Industrials and Consumer Discretionary also achieving minor breakouts which should help the broader market start to play catchup to the recent outperformance in Technology.
As charts of RSP show below, (Invesco’s Equal-weighted S&P 500 ETF), the key chart to watch in the days ahead might not be ^SPX, but rather RSP, which has lagged performance since mid-May. (This former sideways action directly speaks to the deterioration in market breadth, which has played out over the last month.)
However, things might be changing given that prices managed to push above the highs of the range as of Tuesday’s close. As shown below, a daily close at the highest levels since February is seen as bullish technically and likely could help RSP to begin to gain some ground.
Resistance levels lie near 183, then 188, and should likely contain gains over the next month.
Importantly, since RSP just broke out, this wave structure largely mirrors what SPX and QQQ are showing from the April lows. Specifically, a five-wave advance looks to be occurring off the April lows for ^SPX and QQQ, and also looks to be forming now in DJIA and Dow Jones Transportation Average. In plain English, this is a good technical sign for the prospects of an additional rally in 2H 2025. However, we likely will have to show some consolidation in August-September timeframe before being able to push to new all-time highs for RSP.
At present, I feel that Tuesday’s breakout leads to upside acceleration as some of the former laggard groups now begin to “come to life”.
Invesco S&P 500 Equal Weight ETF
Financials breakout is helpful for the idea of a broadening out of this rally
The Financials sector has finally broken out of its six-week consolidation, which began in early May. This sector remains important for ^SPX as the 2nd largest sector by market capitalization. It currently accounts for 14% of ^SPX.
Thus, evidence of Financials “coming to life” is generally a helpful sign, and while I’m showcasing the SPDR Financials ETF (XLF) below, the Equal-weighted Financials ETF by Invesco is making a similar move. (RYF)
Stocks like JPM, AXP, GS, MS, C, STT, COIN, HOOD, BLK, and RJF remain quite attractive technically and likely outperform in the months ahead.
XLF breakout of its one-month range should help this push back to new all-time highs and signals the likely beginning of some near-term outperformance from Financials in my view.
SPDR Select Sector Fund – Financial
DJ Transportation Average has also joined the Financials sector in breaking out.
Today’s move in the Dow Jones Transportation Average (“Transports”) was also quite constructive, and should help the Industrials sector also begin to show better relative strength in the next month.
Stocks like AVIS, UBER, AAL, ALK, DAL all rose more than +2.5%.
Moreover, as daily charts show, the Transports had a bullish “Double breakout” as both the downtrend from late last week was exceeded on the same day as a range breakout since May.
That’s very good news for leading sectors like the Transports, and I expect upside follow-through to $15,795, then $16,200 without much trouble. Rising back to new all-time highs to join QQQ will certainly take some time and isn’t expected right away.
Dow Jones Transportation Average Index
Emerging Markets ETF (EEM) reaches its highest levels since 2022 as the US Dollar starts to weaken again on Ceasefire Optimism
As seen below, EEM has now cleared last October 2024 peaks which served as temporary resistance for the last couple weeks.
At current levels, EEM has reached the highest levels since 2022, which is a bullish structural development that should jumpstart its move up to $53 and potentially back to test all-time highs in the high $50s.
Countries like China have seen their stock markets start to show better relative strength lately, while Latin America has seen some resurgence in Brazil. Additionally, despite fears of a slowdown in India, their stock market has rebounded sharply in recent months and also has managed to repair much of the damage from last Fall.
Overall, I like Argentina (ARGT), China (FXI), Mexico (EWW), and India (INDA) to show better relative strength than many other Emerging market countries’ equity markets.
Given a plummeting US Dollar which might decline 3-5% in the next few months, I anticipate further Emerging market strength into this fall.
iShares MSCI Emerging Index Fund
