The near-term bounce ahead of the all-important CPI data looks to be nearing a critical area Monday which will need to be exceeded before thinking Equity markets are in the clear. Strong resistance for SPX lies at 4176, while at 4188 for S&P futures.
Treasury yields have rallied back to near the highs of their recent trading ranges with FVX and TNX climbing to levels just shy of December 2022 peaks. While downtrends in yields were broken from last October’s peak, it’s thought that a turn back lower is likely in the near future.
Sector-wise, Large-Cap Technology has been a very good source of strength lately and Monday’s outperformance out of Consumer Discretionary, Communication Services along with Financials are largely in line with the early year 2023 performance.
At present, the technical structure and momentum have waned a bit from early February given the recent weakness, and it’s still hard to rule out more weakness. However, cycles and trends overall still look positive into mid-March-April which should allow any pullback to likely be complete by February expiration before a strong rally back to highs.
Hourly SPX charts below highlight the two intersecting trendlines which could give some resistance to this rally ahead of CPI. The wave structure of this recent pullback does look “corrective” in nature which is a positive. However, one cannot rule out another “ABC” type pattern also before a move back to new highs gets underway.
As mentioned previously, the key area which will need to be exceeded lies near 4176. Support is found at 4060 and cannot be broken without expecting that SPX would decline to 4000 or slightly below to 3950-80 before finding support and turning higher.. 3980 represents a 50% retracement of the rally from late December, while also intersecting a key uptrend from last October’s lows. Alternate Fibonacci wave extension targets of the decline down from 2/2 project to 3950.
However, as discussed, this should be an area where SPX finds support. Only if uptrends from last October are breached and SPX gets under late December lows would the rally scenario be postponed. This is not expected given Technology’s recent relative breakout and ongoing strength. Bottom line, declines post CPI should be buyable. However, more proof of Monday’s bounce extending further to make more structural improvement is necessary before thinking markets are completely “out of the woods.”
The green resistance line shown on this hourly chart below shows levels that need to be exceeded before having conviction that SPX can rally back above 4200 right away.
Treasury yield bounce likely to prove short-lived based on cycles
When examining the cycles that have governed US 10-Year yields over the last few decades, it’s important to concentrate on the 194 week cycle which has had a very strong track record over time, along with a basic 52-week cycle.
This composite I utilize turned down back in early 2011, late 2014, late 2018 and also late 2022 which directly coincided with peaks in yields.
Lows in yield happened also near cyclical troughs in late 2012, 2016, 2020 with the next projected low being made in April.
Notice that the minor blip higher in January into late February has also correctly coincided with a bounce in yields. Thus, if yields continue to follow this projection, a decline should commence in late February into April.
Furthermore, given the strongly negative correlation in yields to SPX over the last six months, it’s likely that stock indices should rally further in March as yields start to turn back lower.
3.57% is the first meaningful area of support which if broken would lead back to monthly lows. Furthermore, 3.32% is also quite important. Breaks of this level should lead down to 3.11% if not 3.00% which I expect can happen this year.
Breakdown in Gold and Silver should offer opportunity to buy dips into late February
Following a very sharp 20% rally in three months’ time, Gold and Silver have both begun to consolidate in the last two weeks.
Gold still looks to move lower in the short run – This trendline violation back on 2/3 was a short-term negative to this uptrend, and should allow for a move down to at least 38.2% retracement, if not 50% and targets at $1828 initially, but more likely at $1780-90,
Daily momentum remains bearish and not oversold and there is a lack of any DeMark related exhaustion that might coincide with a low.
Dollar/Yen rally should be a negative for Gold– Dollar/Yen, which has enjoyed historically a strong negative correlation with Gold, has begun to rally and strengthen over the last three of four weeks. There was initial spike in $USDJPY last week upon learning that Kazuo Ueda would be nominated the Bank of Japan’s next governor. However, this has since faded given reports that Ueda would let data guide his decision making in a very pragmatic approach.
Overall, I expect a rally up to 136.50 for USD/JPY and that should likely coincide with a further decline for Gold before USDJPY peaks and falls back to new lows for 2023.
Weekly trends and momentum remain bullish – However, the degree of strength off last November’s lows for Gold continues to suggest upward prices in the intermediate-term. Weekly MACD remains bullish, which likely should make dips buyable upon any breach of 1800.
At present, it’s early to buy dips in Precious metals, or base metals, and both have been weakening in recent weeks. Gold might close in on its initial downside target just under 1800 by late February which I expect should offer an attractive buying opportunity.
I’ll revisit this when it’s time to consider vehicles for owning Gold and various ETF’s which might make sense for both precious and base metals.
Monster Beverage is attractive after breakout back to new all-time highs
One of my UPTICKS longs, Monster Beverage ($MNST) looks to be finally making its move, following nearly three months of consolidation.
I added this stock to my list of attractive technical longs last Fall on 10/5/22 when it appeared that MNST should begin moving back to new all-time highs, exceeding the neckline of its large reverse Head and Shoulders pattern.
Its 2/13/23 close of $104.22 represents a new all-time high close for the stock which I expect should lead this higher up to $114 initially, while $117.50-120 is also an area that has appeal as technical resistance.
Only a decline under $100 would postpone this rally, which I don’t expect in the immediate future. For now, MNST is one of the more attractive technical choices within the entire Consumer Staples space.