Tech Holds The Key To S&P 500

Let‘s get right into the charts (all courtesy of www.stockcharts.com).

S&P 500 Outlook

S&P 500

Yesterday‘s intraday reversal reached just a little above Monday‘s closing prices, highlighting that more needs to be done for the index to regain upside momentum. The Powell testimony reversal was a good start, and stock bulls need to do more once this event gets in the rear view mirror later today. Given the premarket action reaching 3,890, the case is not lost.

Credit Markets

high yield corporate bonds

High yield corporate bonds (HYG ETF) recovered, and crucially did better than stocks. The volume comparison is also a tad more positive. Should this credit market outperformance in the short run hold, then the S&P 500 is more likley to advance than not, too.

HYG:SHY vs stocks

High yield corporate bonds to short-term Treasuries (HYG:SHY) ratio is still behaving reasonably – the overlaid S&P 500 prices (black line) aren‘t accelerating to the downside. The cue to move higher in stocks is apparent.

Technology

technology to semiconductors

It‘s the tech (XLK ETF) again – its yesterday‘s reversal is not nearly enough for the S&P 500 to think about taking on new highs. Semiconductors (XSD ETF) subtly outperformed, but they don‘t give outrageously bullish signs either. The tech jury is still out, and this heavyweight sector remains vulnerable, with consequences to the S&P 500 if it doesn‘t keep on the muddle through recovery path at the very least.

Treasuries and Dollar

long-dated Treasuries

No spike in TLT volume shows there isn‘t real willingness to buy the dip the way it were in mid Feb – back then, I could call for a moderation in the decline‘s pace for at least a day, now I can‘t do that. This chart presents the greatest challenge for the markets – going well beyond stocks, precious metals and commodities.

dollar

Dollar bulls are predictably on the run. Truly bearish chart targeting much lower lows, in line with the theme I‘ve been banging throughout 2020‘s latter half – the dollar has gotten on the defensive, and would remain there throughout 2021. The technical rebound is over, and not even higher yields can help the greenback much.

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Monica Kingsley 2 months ago Author's comment

Technology holds the key to stocks - and keeps acting rather weak. Rising rates are starting to bite SPX and financials won't save it, and healthcare needs to catch its breath too. Value can't simply carry the full weight.

I was not persuaded by yesterday's gold price action, tweeted mightily - the first swallow of real, directional decoupling from TLT has to prove itself, and it's getting challenged. Amid mildly positive commodities and the dollar going not much anywhere, the gold jury is still a little out while silver and platinum can attempt another run.

It looks like gold can attempt a daily recovery from the low $1790s now that silver reversed. Copper is strong as well, and oil is running. And the dollar? +0.20% won't cut it - too weak a reaction to TLT. The bond market isn't convinced...