Both KRE and XLF look ready to rally, and we would be using weakness here to add to these. EWI has been one of the reasons we have shied away from Europe over the past year.
SPY is testing support in the 446 to 444 area, and if this can hold for a few days this may have been it for a correction. Even if you are in IJR, watch IWM, because if it can move above 200 this could provide a “kick” to both of these. We would be careful if GLD starts to hit new lows.
Stocks had a reversal day last Thursday, and we believe this is part of the short-term topping process we have been looking for. We have been looking at the possibility of a move back down to the 420-area on SPY, and as part of that a move down to 135 on QQQM. If this pullback occurs, and we see those price levels, we would add money.
We would wait for a pullback to add money to existing accounts, but for new accounts that arrive that are cash heavy, it is ok to add money. TLT continues to trade a bit weaker than we expected, and a break below 98 would be a concern, suggesting this could test 95 if that breaks.
Banks are starting to pick up and Tech has shown some weakness. Sectors that have lagged a bit should continue to pick up – Healthcare and Industrials, for example. As readers know, our favorite Asian market has been Japan, for the last several years, but adding one of these (EWS, EWY, THD) to an Asian allocation would make some sense.
We could see a pullback to the 420-area on SPY. There has been no big change in the internal indicators – accumulation is still strong enough to support further upside, and breadth indicators are overbought but not negative configurations. While banks sold off on the positive stress test and stronger earnings news, we believe that this part of a pattern that will lead to a bank rally in the second part of 2023.
There is a big NASDAQ rebalance coming and we have had questions about what this means for the markets and the index? For QQQM, we would add some money here now, and more on a correction.
While we have been suggesting the top end of the trading range for stocks, internal indicators have improved more than we expected, consistent with a new uptrend. However, our indicators suggest that some more corrective behavior is possible. We can think of one thing that could surprise the markets – and that is interest rates.
Indicators look a bit stretched, but we still see nothing that would suggest a major decline. Advisors should stick with their models and add money for new accounts. There are some good reasons for USO and UGA, and the oil markets in general, to rally at least until the end of July.
The tone continues to improve such that if stuff is hitting price points in your models it is ok to add. We would hold oil and oil stocks through the beginning of July.
Some indicators have improved. But we could still see some corrective action this week. Accumulation models still suggest adding to models on price weakness. GLD has broken down below the key 180 area. Friday it rallied to retest that area, now resistance, and failed to recover closing below it. This chart is now quite vulnerable.
The market has continued to broaden out in fits and starts, but still looks a bit overbought and we expect a pullback this week. SPY could test the 420 – area, where we would consider adding some money. Below that would imply a test of 412. QQQ could test 338, then 326. Because of the seasonality, we advise selling CORN and SOYB this week.
We continue to recommend being invested in models and will look to deploy trading cash on a pullback, which we think is close – probably after this holiday weekend. We expect the market to broaden out in favor of sectors like Energy.
SPY has broken through the bottom end of resistance at 420, and is testing the 430-area, also part of this resistance zone. The daily and weekly stochastics are both overbought. Support is 420, and if this breaks, we could see a hard-down move.
Stocks may see some more choppiness and correction but should continue to broaden out even on declines. GLD is holding the 180-area, and while we are not optimistic, it is holding so we cannot count it out. The main thing there is that there is little accumulation, and a break of 180 would be a concern. USO has slowly moved down into buy territory from a peak in 2022.
All that has happened so far this year, aside from the banking crisis, is an oversold bounce in some large cap Technology names that has pushed up MGK – which is still more than 10% below all-time highs. Friday’s action was good and a sign that this may be starting, as various sectors and indexes outperformed SPY and QQQ.
SPY rallied to the top end of the trading range at 420. But virtually no other indexes followed, raising questions about Breadth. SOYB has support at 24, and resistance in layers from 26 to 29. The daily and weekly stochastics are both oversold. This suggests a seasonal rally is possible, off of this support.
Stocks should move down toward the bottom of the range in spite of seasonal strength into the Memorial Day weekend. We continue to hold stocks in our models but will not chase a move up.
