Short-term trends remain bullish, and daily momentum gauges have hit overbought levels, while DeMark exhaustion could materialize using multiple methods within the next few days for SPY and QQQ. Overall, 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, but indices are now growing stretched, and some minor stalling out has occurred in recent days. While I suspect a minor pullback could occur, not unlike what happened mid-month in both May and June, there remains insufficient proof to think it’s gotten underway at this time. My thinking is that rates starting to turn higher might serve to spook Equities if/when TNX gets over 4.70%. Yet I don’t sense this bounce is the start of a meaningful rally in bond yields. My analysis suggests that the period between mid-week this week into late next week might prove pivotal for a short-term peak in US Stock indices. However, as has been discussed in recent days, I expect this proves minor and short-lived, and August might end up being more meaningful than the seasonally bullish month of July for SPX.
As discussed last week, there stands an above-average likelihood of some slowdown to the rally which should begin sometime this week. However, given that Equal-weighted ^SPX along with IWM, NDX, MDY, and SOX all rose on Tuesday, it’s difficult thinking this has already gotten underway.
To briefly rehash my expectations in bullet form:
- Reasons for short-term concern revolve around short-term overbought conditions, the start of DeMark’s exhaustion signals starting to crop up on many daily charts of indices, and some minor slowdown in this trend in recent days.
- I don’t expect any July weakness proves too meaningful, nor long-lasting. Weakness over the next 8-10 days could prove to be 3%, and still might not have gotten underway as of Tuesday’s close.
- Timeframe for any pullback should occur between today and next Friday, July expiration on 7/18. I expect only a brief retreat, which might erase 38-50% of the rally from 6/23 lows before a continued push higher. Thereafter, I suspect a sharp rally back to monthly highs into August.
As shown below, Tuesday’s close finished above Monday’s lows, and remains above the rising 9-day moving average on daily charts. Thus, I don’t see this as being problematic. ^SPX could easily engineer a push above Monday’s highs of this week which might allow for a brief move to 6300-6350 before making a stallout and falling to 6150.
Overall, whether one pays attention to the possibility of a mild setback has to do with one’s timeframe and risk tolerance. As I’ve stated, I don’t expect any sort of material setback in July.
S&P 500 Index
TLT cycle composite argues for a big lift in prices (decline in Yields between late July and October)
I discussed the bond yield breakout in recent days, and many are wondering how long this might last before starting to turn back lower.
Overall, based on my interpretation of the current wave structure and pattern analysis, it seems like a 5-wave move is underway to the upside in yields which has nearly completed the first leg higher as of today.
Thus, given my extrapolation of time and price, I expect a push higher over the next couple weeks ahead of a turn back lower for bond yields. This also matches what the cycle composite says for TLT, which points to a good likelihood of higher prices between now and October.
From a price perspective, downside support is likely to materialize initially near $84.38 before giving way to possibly $82.66. However, I am not expecting a break of October 2023 lows in TLT. Pullbacks to the low $80’s would make TLT quite attractive technically for a meaningful rally between now and October.
TLT Cycle Composite
Euro still likely to trend up for another 4-6 weeks before reversing against US Dollar
Meanwhile, despite DXY having reached multi-year trendline support (not shown) it’s important to watch for signs of reversal in EURUSD which makes up the largest currency pair vs the US Dollar within DXY.
As many have read in recent weeks, DXY pessimism has become the single largest crowded trade in global Macro, but inflation has NOT reared its ugly head as suspected, given tariff fears.
As can be seen, this breakout of a decade-plus downtrend just happened a few months ago. Expecting imminent mean reversion despite sentiment having grown ultra-bearish on the US Dollar still seems premature.
I expect EURUSD to hit $1.21, and then $1.27, being a possibility ahead of a possible reversal.
At present, the DXY cycle calls for a Fall reversal, which might happen in August/September. However, at present, it remains difficult to bet on rallies in the US Dollar in the near-term given its negative momentum, and inconclusive DeMark counts on weekly charts of either DXY or EURUSD.
Cycle composites for DXY do suggest that an above-average bounce in DXY happens in Q4 into early next year. However, it’s hard to expect that should happen right away. Thus, DXY very well could trend lower into August ahead of a possible multi-month reversal.
Euro/U.S. Dollar
Copper has broken back out to new all-time highs, given a 50% tariff possibility
Following up on recent comments on Copper, we see that Tuesday’s surge of nearly 10% has lifted Copper to new record highs ahead of the tariff announcement.
Goldman Sachs estimated that traders were pricing in a 14% duty, so this proved to be substantially greater than expected.
“Front-running” of Copper could now help to carry prices even higher in the short run, given that this might raise the stakes to get as much Copper into the country as possible ahead of the coming levy.
Technically speaking, I had anticipated a move up to $5.50-$5.75 into early August before a decline during the balance of 2025.
Both daily and weekly Cycle composites for Copper argue for an August peak followed by a pullback into early 2026 ahead of the next wave higher.
Thus, rather than setting an upside target based on extrapolating prior swings higher to arrive at a technical target, I would simply utilize a 9-day moving average and consider Copper to be still trending up and having the potential to go higher until price starts to fall under this 9-day moving average. Furthermore, from a time standpoint, August seems more important than July, and given that this policy was just announced, I anticipate that Copper might very well spike further in the weeks ahead before peaking next month.
At present, this looks to be a bullish breakout back to new record highs, and I anticipate that Copper mining stocks like Freeport McMoran (FCX) or the Global X Copper Miners ETF (COPX) might also experience further gains over the next few weeks ahead of peaking out.
If past Administration announcements are any guide to current or future announcements, it’s unusual that a first announcement has proven to be the final guide, and adjustments can often prove frequent before the final level is known.
Copper Future
Source: Bloomberg