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- SPX and NASDAQ have pushed to the highest levels of the year, while DJIA and DJ Transportation Avg. have lagged on this rally. May has proven to be far more resilient than expected, but this directly lines up with pre-election year seasonality. Index trends remain positive from March 2023/last October 2022 but nearing resistance into June
- Large-Cap Technology has rebounded sharply but looks to be nearing resistance in overbought territory. SPX and QQQ gains are a bit deceptive, as SPX in equal-weighted terms has declined three out of the last four weeks, and three out of the last four months. SPX has strong resistance at 4235-4325 before a near-term stalling out. Bearish sentiment combined with positive 2nd Quarter seasonality keeps trends pushing higher for now. It’s necessary for sectors like Financials, and Healthcare to recoup weakness seen in May to have faith of an uninterrupted rally.
- Treasury Yields have bounced sharply over the last three weeks but are nearing resistance near 3.90% for TNX. Technical trends remains bearish from last Fall, and the recent bounce in yields should translate into buying opportunities for Treasuries and lower rates into June. Correlation has turned negative vs. Equities in last month. Cycles still point lower into June before any trough in yields, but the next 3-4 weeks could prove volatile. Expect TNX to peak and turn down prior to eclipsing 4.00%
- US Dollar index strength in recent weeks still looks to strengthen into early June before a peak and pullback . At present, the Dollar’s recent strength has not been sufficient to turn larger trends bullish.
- Commodities have proven negative over the last six weeks but should be able to stabilize and attempt a rally upon evidence of the Dollar turning back lower. Energy and Metals have been weaker in May, but dips look buyable for now. Failure of Crude to mount a rally into June could trigger further selling into this Summer before a more meaningful rally. At present, Copper looks close to bottoming. Sugar, Live Cattle and Frozen Orange Juice are the most bullish
A Few Warning Signs to heed into late May
- SPX has largely gone nowhere in about six months and several of the top FANG names have accounted for the majority of this year’s performance
- Equal-weighted charts of Value Line show the bounce having been very anemic thus far off March lows, which remains well under February 2023 peaks. Percentage of stocks above their respective 200-day moving averages (m.a.) is at 37% which was seen at March 2023 lows two months ago, while SPX is 400 points higher.
- Financials, Discretionary, Energy, REITS and Communication Services have dropped for three of the last four months when viewing Equal-weighted ETF’s. Materials is at six month lows, and Industrials has also dropped for four straight months in Equal-weighted terms
- Technology’s strength has largely come from Large-Cap Tech, which remains in great shape, but just stretched. Meanwhile, equal-weighted Technology broke uptrends from last October and has broken down vs. XLK to the lowest levels since 2009
- Breadth has waned in recent weeks, owing largely to markets flattening out in April. Fewer stocks are above their respective 50-day moving averages than back in early February
- Seasonality for most years tends to run negative from May into October.
- Both daily and weekly Cycle composites have largely failed to bring about
- $AAPL looks to be nearing intermediate-term resistance at 176 which might limit upside and result in a further stalling out in Technology after this run-up. Watching key market components like $AAPL, $MSFT and $GOOGL remain important for clues on $QQQ, SPX
- DeMark exhaustion looks close to lining up with counter-trend “Sells” (13 Countdown signals) for XLK on daily charts, while daily and weekly VIX looks to show possible confluence of “buys” (13 Countdown signals) on downside. However, this requires a decline back to new weekly lows for VIX.