Wednesday’s backing and filling failed to do much damage to existing trends, and SPX still looks poised to push back higher above 4200 into end-of-week/early next without too much trouble.
Similar to recent days, the near-term technical structure combined with weekly momentum and breadth remain positively sloped, and not overbought. Minor selloffs in groups like Media/Entertainment and Communication Services have not proven too detrimental, while defensive groups remain weak.
Indeed, Utilities lagged more than Technology did on Wednesday, and Utilities ETF’s like XLU and RYU fell to the lowest levels since November. Meanwhile, Energy, Financials and Healthcare all outperformed.
Breadth came in just 2/1 negative, and despite the weakness, averages managed to hold up above the intra-day lows from Tuesday. This wasn’t too meaningful, and uptrends over the last few weeks have not been violated.
Overall, I suspect that Tuesday’s lows of 4088 should not be breached in this rally scenario. However, if this does happen, the focus immediately shifts towards 4000 as needing to hold. Ideally, prices should turn higher on Thursday into/through Friday into early next week. A push to the highest levels since last August would warrant preparing for a larger pause into late February. At present, there hasn’t been sufficient weakness to make that call.
The hourly SPX chart below is helpful in showing the current symmetry of this rally, and pullbacks have rhythmically bottomed at exact areas which held before bouncing to create a trend of higher highs and higher lows. Until/unless this is broken in the near future, it’s still wise to expect higher prices over the next 3-5 trading days.
SPY looks to have bottomed vs. ACWI and turned back higher
Following a tough couple months of relative underperformance, US stocks look to be turning back higher vs the All-Country World index in the last week.
Much of this is due to large-cap Technology snapping back, but this ability of the relative chart of SPY vs ACWI to turn back higher is a positive for US stocks and potential for outperformance.
Weekly relative charts of SPY vs ACWI going back over the last five years barely showed any real weakness, and the underperformance since late last year wasn’t even sufficient to break its ongoing uptrend.
Fast forward to this week, and strength in the US has resulted in SPY breaking back out above the downtrend from late last year. While momentum might take some time before properly turning higher sharply (and this will likely depend on stocks like GOOGL, AMZN to join AAPL and MSFT in surpassing their intermediate-term downtrends, the act of having held its intermediate-term support is thought to be quite positive.
Emerging Markets ETF (EEM) looks to be at first meaningful resistance, but relatively speaking should start to outperform
$EEM looks to be near its first major area of downtrend line resistance following a very sharp rally off the lows from last Fall. The area at $43 intersects a downtrend extending down from early 2021, along with a large area of Ichimoku cloud resistance.
Some of the recent stalling out in EEM and minor pullback this past week has coincided with the bounce in the US Dollar index. This resulted in underperformance in Emerging markets, and China, Taiwan, Brazil, South Korea have all fallen.
Interestingly enough, relative charts of EEM vs SPY (not shown) have been basing and should gradually give way to a much larger rally from Emerging markets relative to S&P 500.
Overall, given the strength in markets like China and Mexico lately, minor 5-10% pullbacks likely translate into attractive opportunities to buy these markets.
When the US Dollar begins to turn back down to new monthly lows, this is likely to spur on greater strength in $EEM and overweighting this vs. SPY is getting increasingly more attractive (Despite SPY having turned up vs All Country World index -ACWI)
An absolute close over $42.53, the most recent intra-week high print from two weeks ago, would signal the start of a rally in EEM up to the mid-to-high $40’s.
At present, this has not yet occurred, and daily EEM charts show why this area remains critical for EEM in the days/weeks ahead.
FTSE breakout to new all-time highs looks quite constructive
Europe’s outperformance this year has caused a lot of “head-scratching” among investors, but few have discussed the recent push back to new all-time highs in the FTSE 100 index.
This week’s gains have successfully managed to surpass former peaks going back since 2018, breaking out of a reverse Head and Shoulders reversal pattern.
The breakout to new highs looks promising for 2023 for UKX, and I expect this likely follows-through higher above $9,000.
The top ten holdings of $SHEL, $AZN, $HSBA, $ULVR, $BP, $DGE, $GLEN, $BATS, $RIO and $GSK represent about 46% of this cap-weighted index. While this mimics the holdings of MSCI’s United Kingdom ETF, $EWU, the currency differences between a US Dollar based $EWU and the Sterling-based FTSE 100 ($UKX) make EWU look subpar, technically.
Unfortunately, there doesn’t exist an US-based active ETF which tracks this index perfectly, and investors would need an international brokerage to purchase FTSE 100-tracking ETF’s from UK markets. However, ETF’s like $VGK, $EWU, $EZU, and $FEZ are all liquid choices that can give close approximations to UK large, and mid-cap stocks and to Europe in general.
Specifically with regards to the closest US based ETF which has similar holdings to FTSE, or $EWU, this will need to eclipse $34 to help this begin a meaningful breakout.
Overall, this chart just serves to show that outside the US, there remain ample choices of indices that are acting quite well which avoid holding big percentages of US technology.
