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 there stands a chance of some expiration-related selling next week. While I suspect a minor pullback could be nearing, 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 next week if/when auction results are poor, combined with higher-than-expected CPI report. My analysis suggests that the time heading into next week might prove pivotal for a short-term peak in US Stock indices. However, as discussed, this week’s trading has provided zero evidence that this is yet underway. Overall, it’s right to trust this US Equity rally until evidence of NVDA peaking occurs, given its weight within the benchmark indices, and that still appears premature.
As shown below, Wednesday’s close was quite constructive after the minor stalling out in recent days. IWM 1.85% actually finished at the highest levels since February and has been showing meaningful outperformance vs. US Equities of late. Meanwhile, both ^SPX and NDX still appear to have a bit more upside to go to reach new monthly highs before any type of settling gets underway.
Overall, I think it’s right to expect ^SPX lifts up to 6350-75 area in the next 2-3 days which might help TD Combo “13 Exhaustion signals” form for ^SPX, and also for NVDA 2.29% potentially. The confluence of two different DeMark related signals might be important towards signaling some type of stalling out.
However, at present it seems still a bit early to spend much time on talking too negatively regarding US Equities, as price has given zero reason for concern, and sentiment has also not really shown much evidence of speculative optimism.
However, momentum is getting stretched, and most Elliott wave counts do suggest a possible short-term peak might materialize into next week. Provided that ^SPX remains above its rising 9-day moving average along with a lack of confirmation of any DeMark related signals, it seems right to ignore warnings without any proof of price confirmation.
The two horizontal lines in the ^SPX chart below might prove important into Friday and/or next Monday. At present, this is the next area to concentrate on given today’s price strength.
S&P 500 Index
Russell 2000 has been steadily outperforming Momentum in the month of July thus far
Following up on recent comments regarding momentum issues in July, we see that the Russell 2000 has managed to trounce the iShares MSCI USA Momentum Factor ETF since the beginning of July.
As discussed last week, momentum has suffered five straight negative Julys despite this month proving historically bullish for stock indices.
Small-cap outperformance has largely gone unnoticed lately, but continues to make headway in the short run and IWM 1.85% has outperformed ^SPX over the last three weeks as this has trended higher.
IWM 1.85% itself has reached the highest levels since February as of today’s close and looks apt to continue up into early next week before facing much resistance.
IWM 1.85% vs. RSP 0.41% (not shown) has managed to recapture the giant consolidation area, which had been broken, and bodes well for further Small-cap outperformance between now and August.
However, this divergence between the Russell 2000 index and the Momentum Factor ETF looks striking and could widen out even further over the next couple of weeks.
iShares Russell 2000 ETF
$NVDA is still trending up and briefly exceeded a $4 trillion market capitalization for the first time in history
Meanwhile, NVDA 2.29% remains very important to concentrate on given its size within ^SPX, QQQ 2.65% , and the Technology sector.
Wednesday’s intra-day push higher briefly helped NVDA 2.29% exceed a $4 trillion market cap for the first time ever.
This remains quite important to pay close attention to for those who care about short-term ^SPX direction, given its size.
DeMark tools might begin to line up in 3-4 trading days with a combination of daily TD Sell Setups, daily TD Combo and TD Sequential exhaustion signals.
However, until these are present, it makes sense to hold off in getting too negative on trying to call peaks in ^SPX or QQQ 2.65% .
Nvidia Corp – NVDA
Energy is still trending up in the near-term despite the bearish output hike by OPEC+ over the last weekend
Following the OPEC+ decision to hike output dramatically for both July and August, we see Energy not moving lower but higher as Crude’s 5% rise has caused the Energy sector to outperform all other major S&P sectors in the last week, higher by more than 3% (S5ENRSX- Bloomberg)
The daily chart below highlights XLE -0.17% , the Sector SPDR Energy ETF, which has made a very bullish short-term move in the past week. This looks likely to continue up to near $91-$92 from its current $88.13. It’s always important to pay attention when bearish news for Oil doesn’t result in follow-through lower, but in this case, dramatically higher in the last week.
Overall, I raised my technical rating on Energy to Neutral and expect this recent surge to continue a bit longer before some backing and filling into late July.
SPDR Select Sector Fund – Energy Select Sector
