Near-term and Intermediate-term technical trends remain bullish for US Equities and should still help SPX push higher as breadth continues to expand. Meanwhile, DJIA and Equal-weighted SPX are both very close to hitting new all-time highs, which might occur over the next week. Technology’s strength has helped to drive recent performance and has solidified this sector as being the best performing out of all major S&P sectors on a 1-week, 1-month, 3-month, and 6-month basis. However, the strong relative strength in other sectors like Financials and Industrials has helped to add some appeal to this rally over the last month, and the broadening out helps to add conviction to its durability. Despite the minor bounce in both Treasury yields and the US Dollar in recent weeks, no deterioration has happened to risk assets, and sentiment has not yet become bullish despite a 31% SPX rally in the last 16 weeks off the early April lows. Overall, arguably it’s still right to favor that this rally can continue into August before some consolidation gets underway, which gels with post-election year seasonality.
A few points are important to mention about Tuesday’s session:
^SPX, along with IWM 2.98% , both formed bearish engulfing patterns as both opened above Monday’s peaks and closed down under Monday’s lows. However, NDX, DJIA 1.49% , and RSP 1.97% did not.
Market breadth was actually positive today despite the selling pressure, which was pronounced in Industrials and Communication Services. (NYSE Advance/Decline finished with more stocks higher than lower, while Volume was also higher in Advancing issues than Declining.)
The market showed a defensive bias again today, despite the positive A/D figures. Consumer Staples, REITS, Utilities, Healthcare, and Energy all rose more in Tuesday’s session than Energy.
US Dollar index made a minor breakout which likely helps to carry this even higher over the next 1-2 weeks ahead of a peak.
The ratio of Investment Grade Corporates to Junk (LQD 0.35% vs JNK 0.31% ) moved to multi-day highs today, and will be something to keep an eye on in the weeks ahead.
For now, my comments from last week remain relevant, and Tuesday’s minor ^SPX decline failed to do any technical damage to the US Equity rally. While an “Engulfing pattern” per ^SPX’s candlestick chart normally can allow for some minor backing and filling, I do not suspect this proves long-lasting and might just show another 1 or 2 days of selling before stabilizing and turning back higher.
S&P 500 Index
US Dollar rally looks to persist a while longer
Both Treasury yields and the US Dollar index have pushed higher since the beginning of July. However, my analysis shows the bounce in both ^TNX and DXY to be counter-trend rallies, which eventually should give way to a pullback down to new monthly lows.
In the near-term, this Dollar strength has resulted in both commodities and Emerging markets underperforming in recent weeks. Countries equity markets like Mexico, India, Brazil, have all pulled back coinciding with this Dollar strength.
Moreover, many Soft commodities have also turned sharply lower, as mentioned in Tuesday’s F N/A% lashInsights report. Grains, along with Cotton, Coffee ‘C’, Cocoa, and Frozen Orange Juice, have all weakened over the last month.
I suspect that the DXY should trend up to 100.65, possibly before a pullback to new 2025 lows over the next month. Additional weakness in the DXY likely does result in many of the Emerging markets turning back higher in the months ahead.
I prefer Mexico, India, and China as being more technically attractive than Brazil.
Finally, with regards to the US Dollar index (DXY) (Roughly 60% of DXY is versus the Euro) I expect that Euro weakness vs. the US Dollar likely should persist over the next 1-2 weeks before bottoming and turning back higher.
U.S. Dollar Index
Brazil’s ETF (Ishares MSCI Brazil ETF- EWZ) likely weakens further over the next 2 months
The chart below highlights EWZ 0.44% ’s weekly chart, which maintains a bearish intermediate-term technical structure, and the bounce which began in late 2024 likely has reached completion.
I suspect EWZ might show continued weakness down to $25.51-$25.75 initially, and below would result in a possible test of $22.
For those who have an intermediate-term investment perspective, $22 is a very important level as it goes back since 2020 as important support.
This level cannot be breached without resulting in a very bearish trend getting underway. At present, one cannot call for $22 to be violated, and I suspect that following some weakness down to near $25.50, some mild stabilization might happen as the US Dollar rolls back over.
iShares Inc. iShares MSCI Brazil ETF
Grains have begun to turn down sharply
Grains weakened sharply today, and the combination of highly favorable crop conditions (73% of Corn rated good or excellent (best for this time of year since 2016)), along with Argentina’s decision to slash export tariffs, is causing the already elevated supplies to rise even further.
Thus, those who expect inflationary pressures to rise should not expect that the cost of grains will be among the factors that might weigh on Consumers, as Soybeans, Corn, and Wheat all look negative.
Front-month Wheat futures, as shown here, look likely to fall to test $5.00/lb. in the weeks to come. Corn and Soybeans also have bearish charts, and a violation of $4.07 in Corn futures and $10 in Soybean Futures would result in this recent decline starting to accelerate.
Wheat Future
