Near-term and intermediate-term technical trends remain bullish for US Equities, but it’s thought that the rally in US Stocks likely will face some meaningful resistance at marginally higher levels, which might begin sometime between now and August Expiration. SPX has now officially joined QQQ at new all-time highs, and might scale up to 6550 before making some kind of peak near resistance. Perhaps more importantly, the Dow Jones US Total Stock Market index (Measuring all US Equity securities with readily available prices) also pushed back to new all-time highs as of today. Overall, despite some of the minor concerns regarding Elliott-wave patterns nearing completion, seasonal/cyclical periods of weakness approaching and waning breadth, it’s going to be necessary to see evidence of US Equity index prices turning down in a manner that would help to add conviction to these concerns. At present, today’s new all-time high in SPX likely can help to carry prices even higher, while NVDA looks ready to exceed its triangle consolidation, which was exceeded today by META -1.80% . Overall, while it’s proper not to grow too complacent in August, it’s also proper to let this rally run its course until the market demonstrates evidence of starting to weaken.
As this chart shows below, ^SPX has just exceeded the former late July peaks in ^SPX, and could have little to no resistance until around 6550.
Tuesday brought about some above-average strength in Small and mid-Caps, but it proved to be Technology which roared back to “save the day”, again. Seven Equal-weighted ^SPX sectors out of 11 were higher today by more than 1%, with three sectors eclipsing 2% in performance. Market breadth rebounded sharply and finished over 4/1 bullish. Thus, while I’ve been complaining about market breadth in recent weeks for good reason, this week has actually helped this to make some incremental progress higher.
For those hunting for market peaks, it’s proper just to respect this trend until some evidence of it giving way starts to appear. As the popular saying goes: “The trend is your friend, until it ends.”
At present, the push back to new highs on good market breadth, while Small and mid-cap indices show above-average strength, looks constructive for the balance of this week. Until that changes, it’s still right to respect this rally, even if it seems stretched by some measures.
S&P 500 Index
I’ll repeat the list I showed in yesterday’s report for those who might have missed it.
The following points look important to list as both negatives and positives to the recent rally. Initially, I’ll list some of the concerns I’m watching:
- RSP -0.06% , DJIA 0.09% still churning “near” record highs, but have not followed suit. (This doesn’t have to be bearish, but just pointing out.) See RSP -0.06% , DJIA 0.09% charts
- Defensive sectors HAVE been making headway. This “normally” is what most technicians like myself see happening BEFORE a correction.
- Breadth has also slid since mid-July, and that could be a problem
- Parts of Technology, Software, for instance, have been weakening of late, making selectivity important in this sub-sector.
- Seasonality favors selling in Late August into September
- Cycles also show similar weakness starting sometime in mid-August.
- Market has gotten overbought and some negative momentum divergence as SPX and QQQ’s price push to new highs did NOT coincide with momentum following suit.
However, the following are certainly very good news for risk assets, in my view: - Sentiment remains still quite Subdued at best.. not really all that speculative. Still lots of concern about tariffs, economy and Fed’s Endgame for rate cuts.
- 4 Rate cuts are now priced in the market, given the swaps market between now and late July of next year.
- The trend in the US Dollar and Treasury yields has turned down sharply, and these can support a rally in risk assets.
- Tech, to its credit, has still been acting well. Charts of NVDA 3.04% , META -1.80% don’t show topping formations. But triangles near-term, while TSLA 0.94% and AAPL 1.03% just broke out. IE, these CAN and probably WILL carry the market a bit higher. But risks are certainly rising
- Cryptocurrencies still look great and have shown some good positive correlation with Equities
- Rate cuts look highly likely in September, and I think cutting rates aggressively makes sense, as Tom Lee and others have stated that inflation SHOULDNT rise dramatically even if a minor spike into early next year.
- The broader trend for Equities arguably remains quite bullish, and despite some momentum and breadth slowdown, intermediate-term momentum gauges for ^SPX remain positive
Small-caps continue to make progress in outperforming the Equal-weighted S&P 500
Small-caps had their second-best day of performance this year (based on the Russell 2000 index’s performance) and returned nearly 3% in trading today, second only to April 9th’s +8.66% gains.
This helped the relative ratio chart of IWM 0.36% to RSP -0.06% to push higher and exceed former peaks of this ratio chart of the Russell 2000 ETF vs. the Equal-weighted S&P 500 ETF (RSP -0.06% ) by Invesco.
As this relative chart shows, there’s been steady outperformance from the Russell 2000 when gauging this vs. the Equal-weighted S&P, suggesting that despite the ongoing bearishness towards Small-caps, IWM 0.36% has actually done quite well, performance-wise in recent months.
Unfortunately, trying to compare IWM to SPX with its heavy Large-cap Technology and AI exposure doesn’t generate the same results, but shows a muted period of sideways performance since April of this year (not shown).
Overall, the breakout in IWM/RSP looks positive for the balance of this week, and I suspect IWM can show additional outperformance this week.
IWM on an absolute basis managed to exceed the peaks from late July at $226.71, which bodes well for a possible move up to 232-5 before some slowing in the coming week.
Moreover, for those who study DeMark indicators, it’s important to relay that there was a successful monthly TD Sequential “13 Countdown” (Buy) confirmation at the end of July on the chart of IWM vs. RSP which bodes well for possible additional outperformance from Small-caps.
The key takeaway is that despite the negativity towards Small-caps, they’ve actually been performing fine in recent months, except for a late July minor selloff.
IWM/RSP
Consumer Discretionary has also achieved a minor breakout today, which bodes well for another 1-2 weeks of follow-through
Today’s move in Consumer Discretionary proved to be quite constructive for this group, and stocks like APTV -4.32% , EXPE -0.11% , MHK 0.21% , RL 1.18% , CCL 1.49% , and WYNN -0.57% were all higher by more than +3.50% on Tuesday. While this might not signal the “comeback in the Consumer” that many are hoping for, there’s certainly been some above-average strength in many Entertainment stocks lately, which is worth closely monitoring over the next week.
Today’s move should help this sector show above—average relative strength for the balance of this week in my view. (Note that Invesco’s RCD -0.26% is shown below, not XLY 0.20% , given the huge distortions caused by AMZN 0.18% , TSLA 0.94% , and NFLX -3.20% within this latter ETF.)
Invesco S&P 500 Equal Weight Consumer Discretionary ETF
Consumer Discretionary nearing former highs in Equal-weighted SPX
Relative charts of RCD -0.26% to RSP -0.06% show this relative pair to be approaching former highs and this ratio has now generated one DeMark-based exhaustion signal with the possibility of another “13 Countdown” (Sell) possibly within two days.
Thus, while today’s move is certainly bullish for Discretionary, I’m wary about thinking Discretionary’s outperformance should have any true longevity. Pullbacks over the next month would make this sector more technically appealing.
It’s important to watch carefully to see what this ratio chart does once it approaches former highs, which could materialize in the coming days.
RSPD/RSP
