While we still see some divergences and signs of exhaustion, unless SPY trades below 453, the trend remains short-term up. Still, caution is indicated. We do not expect big problems this year, but 2025 is a different story, and we should be discussing the possibility of a tough market after the election, with clients.
If the reason the market has been choppy is interest rates, we should see prices up. GLD is trying to hold support in the 215 to 214 area short-term. Failure here would spark a test of the 210 area and below that 200.
We have daily recycles on MDY and IJR, and SPY has turned up very close to a recycle. DXY has layers of resistance from 107 to 110, and above this (which we ultimately expect) would suggest another advance that could exceed 115.
We ran our Accumulation Models on SPY and QQQ, and somewhat surprisingly they are a bit weak, so it would not be a surprise to see a bit of correction over the next few weeks.
One thing that is interesting about this phase of the rally is that it has spread to some defensive sectors, a bit of a surprise. Bonds are at key levels, as TLT tested the 92 resistance, our second target, and has failed so far. EEM has started to perform well as it has a high weighting in China and Taiwan.
The market should be choppy to up into the end of May/early June or longer. TLT is still trading in the 90-area resistance and next resistance is 92 or so. Failure at that level could end this stock rally early, so watch TLT.
Stocks still look bullish into June at least. This view will hold unless SPY starts closing back below 511. We think this downtrend in FXY may finally be ending (or at least slowing) because of the recent trading action – the new low followed by the pop up with no follow through buying is typical of a first round of government intervention.
In Stocks we have seen the expected move above the 512-area in SPY. We would continue to add to Mid Cap names in here as this area looks to continue to improve.
If we are correct, this market should stage a choppy rally into the end of May, before the next pullback. The weekly stochastic is close to a buy recycle, and failure to exceed 100 on this signal, if it occurs, would be a signal rates should trend higher on the next sell indication. We rate China as buyable here for the first time in several years.
Stocks still look they have made a trading bottom at least, and possibly an intermediate bottom. The McClellan Oscillator is now neutral, at a +1. This suggests more upside. This is one of the reasons we are short-term bullish.
Stocks have been in pullback mode, and we have challenged the areas on SPY and QQQ we have been looking for. These were the 500-area on SPY, and the 425 to 410 area on QQQ. Note that Mid and Small Cap were up on Friday, and advisors that are more aggressive might want to look at this area instead of the large cap units.
SPY has come very close to the 500-area we have been looking for. QQQ has fallen off as well and is testing support in the 430-area. We think the market could turn up for the remainder of the week but remains in a precarious situation due to the bond market – which could be choppy to down (rates up) into the end of the month.
Stocks have continued the pullback we have been looking for, closing below the 512-area on SPY that has supported this market. This targets the 500-area we discussed as our secondary support. This pullback is probably not over, and after this week the decline might resume.
Everybody should reread the Weekly regarding a potential upsurge in inflation and watch oil with regard to this. One of the sectors that is trading well, and related to commodities, is XLB.
The only concern we have is that the daily stochastics are only about halfway down the range, even on the weakest indexes. This suggests there could be some sideways action or even further decline to secondary support. Interest rates do look ready to advance.
A break of 512 on SPY would target 500. QQQ has tested the 439 support we have been looking for and much below Tuesday’s low at 438.03 would target 432, then 400. A TLT close below 91.42, would suggest a sharp rise in rates is likely ahead.
We continue to see that the stock market is broadening out, as RSP has made new highs, along with MidCap. If TLT becomes overbought, without price exceeding the last high, and ideally testing the 100-area, the chance of a rate cut drop, in our view.
