Bottom line, the $SPX bounce needs to surpass 4019 to have real confidence in this move extending. While I’ve expected a rally from 3920-5, there remain two possible areas of concern to this thesis: First, Utilities have staged a minor breakout and are likely to push back to all-time highs. Second, the DeMark count on Treasury yields actually requires another few days of strength before completion. (Thus, while yields are close to peaking, there needs to be a bit more upside). Any turn back higher in $TNX above 3.36% likely would reach 3.50-3.55, and this very well could result in another minor decline in $SPX before its much anticipated bottom. At present the key area of interest is last Friday’s intra-day highs of $SPX 4019. Any advance over this level signals a rally is underway into mid-month. Until that time, it pays to keep a close eye on this bounce and to watch Yields carefully given recent correlation trends.
Precious Metals likely to show some luster
Gold and Silver finally look to be at an area where an oversold bounce can occur. Rallies into Year-end look possible, but are likely to prove tactical only, and not the start of a push back to annual highs.
Given my expectations of Treasury yields peaking out in the short run, along with a possible pullback in the US Dollar, both of these should be positive for a metals rally.
(Gold peaked out at all-time highs back on August 6, 2020, within one day of Treasury yields bottoming. Any meaningful rolling over in yields is likely to coincide with Gold bouncing).
Seasonally speaking, the month of September is the best month of the year for Gold when looking back at history, even though it’s been lower over the last 5 and 10 years on average. Given the decline in Gold over the last five months, this seems like a good area to expect a bounce following its pullback to levels right near July 2022 lows.
Reasons for sudden optimism in Gold have to do with these key points: 1) Cycles point higher into year-end. 2) DeMark indicators are signaling downside exhaustion. 3) Rates look likely to roll over. 4) Gold has arrived at its six-month anniversary of when it peaked in March. 5) Commercial long positioning has lifted to the highest levels since 2019 while Large Speculators have lessened exposure to the lowest levels in three years. Overall, I expect a rally in Gold up to 1875 to a likely maximum target near 1921 and then will reevaluate.
Utilities look attractive to push back to new all-time highs
Wednesday’s $XLU breakout, (The SPDR S&P Utilities ETF) should coincide with a technical rally back to new all-time highs. Utilities should be overweighted in September.
This group has been slowly but surely strengthening despite rates pushing higher, which might be attributed to stock market weakness driving outperformance into Defensives.
Rates rolling over might allow $XLU to build upon recent strength. Wednesday’s movement looks likely to allow for at least a challenge of last month’s highs.
Wave structure of the $XLU chart clearly shows an ongoing expanding impulsive wave. Movement back to $81-$82 should constitute a chance to sell strength, as this likely would coincide with Equity indices nearing the end of September, entering a time of probable seasonal strength from October- December and also a time when yields should be falling.
Favorite Utilities to favor technically include $AEP, $CNP, $SRE, $SO, and $ED. All of these look attractive to buy and hold at current levels for a push back to new monthly highs.
US Dollar likely to retreat after recent surge
US Dollar strength has continued nearly unabated in 2022 and is one of the few things that have worked whether it’s due to interest rate differentials or the threat of weaker economic growth in Europe due to Energy woes (which is thought to be detrimental to $EURUSD, but looks to be largely baked into prices at this point).
It looks likely that recent strength will not continue unabated, as $DXY has arrived at important levels which require some consolidation. Charts of $USDJPY, $EURUSD and $GBPUSD all have arrived at levels which likely produce reversals of trend in the month of September.
While a Dollar peak is likely to prove short-term in nature, (1-2 months maximum potentially for now) markets might greet that favorably in the weeks/months to come. It’s expected that once a selloff happens over the next couple months, that $DXY likely pushes back higher into next year before a more meaningful intermediate-term peak.
Daily $USDJPY charts show Dollar/Yen to have arrived at important short-term resistance near $145. The area of red channel resistance should provide strong overhead resistance which causes a retreat in $USDJPY to under 140 but should not violated $135 before turning back higher. It’s thought that potentially ultimate targets might arrive near $147.50-$148.50 and provide a chance to finally buy Japanese Yen.
