Summary: Equity trends are bullish, but likely encounter strong resistance into early August. As last week's Weekly Technical Perspective stated... Markets are nearing an important juncture where further gains should prove to be far more difficult to come by in the months ahead. Nothing has changed about this narrative given the price action of last week, technically, despite the push back to new all-time highs. Markets have arrived at a period where economic data has improved in recent weeks, yet the Fed fund futures market is still pricing in 1/4 point drop from the FOMC when it meets 7/31. The act of cutting rates while economic data is arguably still fine is interesting to ponder... Is the FOMC being unduly influenced by POTUS? Is the Fed considering European and global data which seems to be slowing and acting preemptively? Overall, the FOMC seems increasingly "boxed in" where it's arguably a bit out of sync with markets, a situation which can bring about volatility. Regardless, when considering this week, the Fed will not want to disappoint the market, and as such, whether or not the Fed cuts is not really up for debate. As to whether its warranted, well that's a different story completely.
Technically, its right to say breadth improved over this last week, largely given Wednesdays push up to test 7/15 highs. Financials and Industrials showed signs of breaking out to new 2019 highs this day, along with the SOX also pushing back to new all-time highs. Momentum on both Daily and weekly charts shows RSI readings in the 60's. (14 period) Not excessive, and sentiment remains not as optimistic as might be expected with Markets at new highs.
However, it IS expected that markets slow in the weeks ahead. To rehash some of these concerns, they primarily deal with 3 key reasons: 1) Near-term overbought conditions in sectors like Technology, which now face increasing regulatory pressure 2) Seasonal cycles which historically have been negative for stocks in the Fall months of a pre-election year 3) Counter-trend exhaustion which historically is important to pay attention to following a steep uptrend (Note, these will be in place at the end of this current week for the first time in 2 months. So it's thought that the trend between now and year end should be neutral- Down from August into October to the tune of 7-10%, and then a rally into year end which could recoup that same amount.
Important Developments of this past week (Shown in Bullet form)
SPX, DJIA and NASDAQ are all nearing upside targets which could be hit later this coming week into FOMC. The time count of counter-trend exhaustion signals coincidentally happens to line up exactly with this coming week's Fed meeting, which makes a reversal an above-average possibility
Breadth indicators like Advance/Decline rallied after last Wednesday's advance, and has pushed back to near all-time high territory. However, the slowing in breadth since early July is expected to potentially create a top in A/D into early August.
Treasury yields have stabilized in the last five trading days, but it will take a move back over 2.148 to expect a push to 2.25%. Patterns on Treasury yields look increasingly to be bottoming, and might start to spike post FOMC.
Emerging markets are still lagging domestic Equities but very little overall progress in either direction over the last few weeks. Most of the EM space has not kept up with SPX pushing back to new highs.
Sector-wise, Technology has climbed back above former peaks to new all-time highs an Equal-weighted ratio basis vs market, while Semiconductor indices like SOX have also made new all-time highs. However, near-term overbought conditions coupled with Exhaustion indicators suggest this coming week could be important for this sector stalling out. For this coming week, Tech should still outperform.
Defensive sectors underperformed last week, and should show further lagging behavior into August before any temporary bottom. It's right to avoid REITS, Utilities and Staples into August, technically.
The US Dollar looks to have made meaningful headway last week that should drive the Dollar higher vs many domestic and Emerging market currencies over the next 1-2 weeks. This is a primary reason why EM has underperformed and Commodities have stalled. Rally to 98.50 looks possible.
Sentiment is still largely "dicey" with AAII having contracted back down to flat in bulls vs bears, with equal positioning. Thus, it's likely that equities rally as sentiment is poor but any encouraging rhetoric out of the FOMC could help this improve just as equities are nearing resistance.
SPX- Bloomberg- Daily- Move to 3040 looks to be underway
SPX- Daily- Bullish but nearing upside targets - The uptrend remains very much intact, and not much concern when just eyeing daily charts for evidence of how price is trending. The real key lies with counter-trend exhaustion that will be in place within 4 trading days. The fact that this lines up and will be complete right as the FOMC is meeting is coincidental, but also suggests that markets could be ripe for reversal starting at the end of this week as July comes to a close.
SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:
Short-term (3-5 days): Bullish- Move to 3041-75 likely The rally up to 3040 looks to be underway and very well could overshoot into 3075, but technically i expect this area to prove important and a place to consider taking profits into FOMC. Targets are arrived at based on several different Fibonacci extensions of prior highs and prior high to low swings, as well as other low to high ranges. Gann resistance also lies directly above, and given that markets are getting so close to these targets, while also reflecting counter-trend sells potentially later this week creates an attractive risk/reward to sell into. For the final few days of July, it's right to favor Financials and Industrials most likely for further gains, while expecting that Tech also has a bit more "in the tank" for this week before stalling out and reversing post Fed. But on a 3-5 day basis, with no technical reason to support a decline here, it's right to favor this rally continuing a bit longer, and it looks right to hold off until Thursday/Friday to start trimming longs.
Intermediate-term (3-5 months)- Neutral- i expect a rally into Aug/Sept.. a decline into late Oct/Nov and then a year-end rally which very well could put prices right back to similar levels they are now. Overall, an SPX rally higher to 3040-70 likely into August before any meaningful peak, but the risk/reward is growing poor, and one should consider taking profits into August. While momentum has turned back to bullish on a daily, weekly and now monthly basis, we've seen some pretty chronic negative momentum divergence on weekly and monthly charts with higher prices in SPX not able to carry these gauges to levels anywhere near what was registered back in January 2018 when most peaked. The "All-stocks" Advance/Decline has moved back to new all-time highs which is a positive, but yet far fewer stocks are hitting new 52--week highs than was seen last year or in 2016-7. Furthermore, only 53% of stocks are now above their 200-day ma despite SPX being at new highs (This compares to 75-85% over the last couple years) Overall, trends and momentum are bullish and sentiment is just gradually getting more positive (but not yet complacent) despite markets being at new all-time highs. It's thought that our recent Jobs number for July could start to help sentiment become more constructive. For now, the next 4-6 weeks from July into August should be bullish, but after August, a material slowdown is expected based on the combination of market cycles along with negative momentum divergence, and a confluence of Demark based "sells" (Exhaustion) Overall, technically, i expect the balance of the year to largely come out near current levels, but should show a fair amount of volatility this fall. Stay tuned.
10 Equities and ETFs that look technically attractive for further gains into early August before a market peak
Amazon.com (AMZN-$1943.05) The pullback of nearly $100 off recent highs on 7/11 (2035.80 down to 1943) should represent an attractive area to buy dips for a reversal back higher which should take AMZN to new highs into early August. The ascending triangle pattern looks bullish technically and the breakout last week consoldidated, as opposed to showing immediate follow-through. Given that near-term momentum is not too overbought and counter-trend Sell signals via Demark indicators are still premature, it's right to consider this minor backing and filling a "gift" for those looking, with support either here at 1943, or below a t1893 that should prove to be an attractive risk reward for a lift into 2076. While former highs in September were considered an area to lighten up initially, a subsequent retest shouldn't encounter too much there to slow prices down.
J2 Global (JCOM- $91.51) Last week's lift above 91 managed to exceed both April-June 2019 peaks as well as last June highs, which effectively breaks this resistance above highs since 2017. Further gains look likely up to 100 in the short run, as this "double bottom" as part of the larger uptrend could accelerate on a breakout of the two-year consolidation near the highs. Momentum is not overbought, and counter-trend exhaustion is premature. Thus, the breakout looks to extend just at a time when the S&P should push higher into 3040 or a bit higher into early August. Unless 87.75 is breached, it looks right to stay with longs and use minor dips to buy, if given the chance early in the week.
Becton Dickinson (BDX- $254.39) BDX breakout of this symmetrical triangle pattern bodes well for further gains, with targets up near 266 initially and then 280. Momentum on daily charts turned a bit negative on the sideways action since early July, but last week's breakout on Wednesday followed by two days of consolidation should bring about a very good risk/reward for this upcoming acceleration. While Healthcare has been a poor performing sector of late, the medical devices stocks like BDX have acted quite well, and IHI is back at new all-time highs. Thus, given the sub-sector strength, BDX looks to be finally joining suit to show some strength in one of healthcare's best performing sub-sectors. It's right to be long, with stops under 250, expecting rallies up to 266, 280.
ETSY- ($70.86) Last week's bullish close at the highest levels since early March bodes well for further gains, and technically ETSY looks attractive for additional upside. This directly followed the high volume breakout that carried the stock from 55.86 to 73 in one week's time back in early March. Last week's volume also spiked on the gains, outpacing the last few weeks, and should lead to a test and breakout back over 73 in the weeks ahead. The uptrend in this stock, as shown on weekly charts, remains very solid indeed and shows the minor pullback into late May not violating the longer-term trend. Thus, while many might seek to avoid ETSY after the move from 61.37 to 70.86 over the last few weeks, this looks to be part of an improving near-term picture that already had shown some excellent intermediate-term strength. The area at June highs near 71.80 might serve as a temporary headwind, but is thought to be ripe to be exceeded for additional upside to new highs. Thus, ETSY looks bullish, and it's right to give this one consideration based on its technical pattern.
S&P Regional Banking ETF (KRE- $55.36) Regional banks look attractive for gains in the weeks ahead, and KRE should be overweighted for the possibility of a move to the upper 50s/early 60s. Given the breakout in XLF last week, it's right to take a look at what might be the stronger part of Financials. Regionals look to have taken a clear path higher vs KBE, and this weekly chart of KRE shows the breakout of this trend going back since Summer 2018, when KRE peaked out. Following a couple former unsuccessful tests, last week's move above $55 looks to have been successful in breaking this downtrend. Gains look likely and KRE should be favored for outperformance into August.
Monster Beverage (MNST- $65.20) Bullish for a breakout post earnings. This recent constricion in the stock price in recent weeks is part of a larger base in the stock and normally precedes a large move. The act of holding near the highs of this consolidation is considered quite positive technically and it looks right to position long ahead of Earnings, thinking this pattern will be resolved by an upside breakout. Movement above $66.35 would represent a chance to add to longs, expecting a push into the 70s. Meanwhile, any decline back under 60.50 would be a negative and postpone this rally.
Shopify (SHOP- $336.54) This recent basing in SHOP since mid-June as part of the larger uptrend is particularly bullish for further gains, and it's right to be long expecting a lift-up out of this base, up to $360. Momentum is not all that overbought given the consolidation, and last Friday's lift up above 336 represented new all-time weekly closing highs. Movement to 360 and then 374-5 looks possible, and it's right to be long, looking to buy dips.
Trade Desk (TTD- $278.55) TTD looks quite bullish given last week's thrust back to new all-time high territory, and the stock pattern has begun to show evidence of this stock really beginning to accelerate lately. Over the last seven months, we've seen evidence of this nearly tripling in price, but yet it continues to move in a very stair-stepping manner that has prevented momentum from growing too overbought. While last week's gains might seem excessive, any dips this coming week would provide an even better risk/reward for this stock technically, as upside targets look to be near $300 initially and then $20. Volume spiked on last week's rally, and suggests this should still be an attractive stock to consider even after last week's gains. Only on a move back under $223 would the trend shift and rallies would be postponed, which is not expected.
S&P Healthcare Services ETF (XHS- $68.25) Bullish for further gains into the low 70s to challenge and then exceed early year highs. While healthcare as a group has lagged lately and still looks to lag into August, groups like the Healthcare Services sub-sector have been steadily improving in strength after having underperformed meaningfully since last Fall. Last week's push up was important technically, and should serve as the technical catalyst for XHS to begin to show more convincing relative strength in the weeks to come.
Twitter (TWTR- $41.52) TWTR finally broke out of its consolidation triangle last week, something which is considered quite bullish technically and bodes well for further strength to the high 40's. TWTR had languished for some time in recent months, underperforming other Social media stocks. This breakout last week exceeded prior highs and pushed up to the highest level of the year on heavy volume. While seemingly overbought on intra-day charts, neither nor weekly charts are all that overbought given the length of consolidation this has shown since last year. Movement higher to challenge last Fall's highs looks likely, and over this would result in more meaningful intermediate-term strength to the mid-to-high $50's.
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