Wishing everyone a safe and happy Independence Day Holiday!
Short-term trends remain bullish, and daily momentum gauges have hit overbought levels while DeMark exhaustion could materialize as of mid-next week for SPY and QQQ. It’s bullish to see the degree of broad-based expansion in sector participation following a push to new all-time highs for SPX and QQQ, and DJIA and RSP could join in reaching new highs as of next week. Bond yields have started to lift this past week on better than expected Economic data, coupled with fiscal uncertainty, while precious metals have started to strengthen as Silver gains ground on Gold. My analysis points to a possible period of consolidation starting next Tuesday-Thursday, which should prove minor and short-lived, with key dates for trend change (similar to June) found near July expiration. However, July is expected to turn in positive results as bullish seasonality argues for a sharp rally into August before any meaningful consolidation gets underway. Overall, this past week’s technical situation remains in great shape and improving for US Equity indices. Sentiment is the one area to keep an eye on, as investors seem to be gradually starting to climb on board and chase this rally following a 30% SPX rally off the 4/7 lows.
As discussed earlier this week, it’s important to reiterate these themes for emphasis:
The most important technical developments this week seem to revolve around three key themes:
- Treasury yields are starting to stabilize and turn higher.
- Momentum stocks are taking a breather after the steep runup.
- Continued broadening out in other sectors outside of Technology.
Overall, there aren’t many reasons to suspect Equities weaken materially in July, given the broad-based expansion in market breadth and less than bullish sentiment. However, ^SPX’s Relative Strength Index (RSI 0.11% ) is now over 75 on daily charts, and a pause looks overdue. Based on the combination of DeMark’s exhaustion indicators along with short-term cycles, the most likely window for July for such a pause could arrive between July 8-July 18th. Thereafter, I suspect a sharp rally back to monthly highs in August.
As shown below, ^SPX is now nearing its weekly Bollinger band, which measures a 2% standard deviation above the 20-week moving average. Given that daily charts already show ^SPX at this area with an RSI 0.11% of over 75 based on Thursday’s close, I suspect that ^SPX upside could prove to be 50-75 points into early next week before showing some consolidation in mid-July.
Overall, there is no sell signal as of Thursday’s close, and “Trump’s Big Beautiful Bill” passed the House vote post-market close on Thursday and should be signed tomorrow on July 4.
Therefore, I suspect that this could prove to initially be positive for Equities early on Monday, ahead of stalling out Tuesday or Wednesday and beginning to retreat. I expect only a brief retreat, which might erase 38-50% of the rally from 6/23 lows before a continued push higher.
S&P 500 Index
Equity Put/Call ratio is now nearing prior lows
Incredibly enough, the Equity Put/Call ratio has experienced a very good record over the last year in pinpointing Stock market lows when this has risen above 0.90, a level that nearly equates to 1 put being bought for every 1 call option.
The arrows show the prior dates when this has hit very high levels, and those occasions shown by the red and green arrows below all corresponded with important swing lows for ^SPX following pullbacks.
At current levels, however, Put/call has neared the other side of the spectrum, which often can signal it’s time to pay attention. If this dips under 0.45 into next week, I would view this as being problematic in the near-term for the prospects of uninterrupted US Equity index progress without a small pullback. Normally, this is a tool I find useful when it nears extremes in either direction.
CBOE Equity Put/Call Ratio
AAII has now flipped to positive territory, and above-average for just the 4th time this year
As shown below, retail sentiment has been steadily rising off the April lows as the Equity market rally has progressed. One of the indicators I find useful at extremes is to monitor the AAII survey, which asks respondents about their opinion of the stock market over the next six months.
Today’s reading of 45% Bulls has now officially flipped to exceed the Bearish respondents view of 33.1%, and is the highest reading since 12/5/24.
The Bearish reading of 33.1% is at a 22-week low, but still above average.
Thus, while sentiment was truly bearish and even capitulatory in early April, it’s now been rising over the last couple months. Thus, while I find sentiment overall to still be subdued and not enthusiastic nor speculative, which is interesting following a 30% rally over the past 13 weeks in ^SPX, it’s certainly starting to improve.
I normally find a ratio of 30% or more in either direction to be important. Thus, at 11% Net bulls, this Bull-Bear spread is not extreme, but has finally begun to show more Bulls than Bears and has been rising rapidly as investors try to play catch-up following a difficult Q1.
I expect that further Equity market progress in July might allow this ratio to reach former peaks into August which would be a time to pay close attention. At present, this signal is not actionable as a sentiment extreme, but it is important that the former bearish investors have begun to capitulate and join the rally.
AAII G Index
Silver looks to be turning back higher towards new monthly highs
Technically, I find this week’s price action in Silver to be bullish and sending a signal that the consolidation from early June has largely run its course.
Price has made a minor trend breakout and should be close to pushing back to new monthly highs in the weeks to come.
I expect SLV 2.87% , the iShares Silver Trust, to rise to the mid-$30s, as Silver begins its runup to $41. Silver has begun to gain ground on Gold, which could allow for some near-term outperformance in the weeks and months to come.
iShares Silver Trust
Silver looks to be gaining ground on Gold
One important technical development involves Silver beginning to show better near-term relative strength than Gold.
Today’s gains of nearly 1% in Silver futures helped the ratio of SLV 2.87% to GLD 1.51% to exceed a downtrend line from last Spring.
While the Summer season has proven choppy thus far for precious metals which normally lines up with seasonal trends, I expect that the recent consolidation in both Silver and Gold should be starting to turn back higher into the Fall.
Importantly, given the ability of SLV to exceed a one-year downtrend vs. GLD, it’s right to favor Silver starting to gain ground on GLD vs. just owning GLD.
As discussed above, I’m looking for a push up to near $41 in Silver and it could show better outperformance in the short run.
SLV/GLD
