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DJI, S&P 500 edge red, Nasdaq off ~0.6%
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Tech weakest S&P 500 sector; energy leads gainers
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Dollar slips; gold, bitcoin up slightly; crude rises >1%
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U.S. 10-Year Treasury yield falls to ~3.51%
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THIS WIN STREAK MAY HAVE S&P 500 BULLS SMILING -SENTIMENTTRADER (1330 EDT/1730 GMT) Last Wednesday, the S&P 500 index closed above its 10-day moving average for a 21st-straight day. It has since extended that streak to 23-trading days through Friday's close:
In any event, according to Dean Christians, senior research analyst at SentimentTrader, similar win streaks over the past 95 years preceded solid returns and win rates. Additionally, he says that signals that occurred in the wake of a 252-day low showed slightly more favorable results. Christians says that when stock indexes are in a downtrend or in the early stages of a bottom formation, price action is volatile, and indexes rarely sustain themselves above a short-term moving average for an extended period. However, he says that when an index can hold above its average for a significant number of days after a lengthy stretch below, the market is most likely transitioning to an uptrend. To capture this bearish-to-bullish moving average reversal pattern, Christians created a trading signal that he says has an excellent record of avoiding whipsaws in bear markets. He admits the untimely alert in 2022 was rare. Still, when a failure occurs, he says the market is more likely to correct through time, not price. The 21-trading day stretch of S&P 500 closing above its 10-day average triggered last Wednesday was the second buy signal by this measure in seven months.
"After similar price trend alerts, returns, win rates, and z-scores for the S&P 500 were excellent across medium and long-term horizons, especially if a signal occurred after a 1-year low," he writes in a note. Christians adds, "Should the most recent alert fail to usher in a new bull market, a trading range similar to the 1946-49 bear market looks more likely."
(Terence Gabriel)
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MATERIALS UPGRADED, BUT ENERGY STILL PREFERRED - GOLDMAN
SACHS (1234 EDT/1634 GMT)
Goldman Sachs upgraded the materials sector as
part of a broader update of the firm's cyclical sector
recommendations, with energy the preferred cyclical
overweight, said chief U.S. equity strategist David Kostin.
According to Kostin, a mixed bag of economic data and
the recent stress in the banking sector have caused the equity
market to downgrade its pricing of U.S. growth in recent weeks,
as cyclicals have underperformed defensives since early March.
That underperformance is "suggesting the equity market's pricing
of real US economic growth has dropped from greater than 2% to
about 1%," said Kostin.
However, while questions about U.S. growth have grown,
economic data in China paints a strong growth picture as the
nation re-opens from strict COVID-19 policies.
This growth should be a plus for metals and mining stocks, which generally track the performance of the S&P GSCI Industrial Metals index and the firm's strategists expect to appreciate by 32% over the next year.
Kostin said that while U.S. mining companies are not
heavily reliant on China as an export market, they do stand to
benefit indirectly from growing China demand as global metals
prices move higher.
The materials sector tends to keep pace with the S&P
GSCI Commodities index excluding energy , which
Goldman's strategists expect a 6% return for over the next year,
which "should drive a modest outperformance" against the S&P
500.
Energy remains the preferred sector, as the firm sees
Brent and WTI prices rising by 23% over the next 12 months,
which could bolster company profits. In addition, the sector is
still at a relatively cheap, trading at close to the largest
discount to the S&P 500 in the last 30 years.
On the downside, Goldman cut the S&P consumer durables and apparel industry index to "neutral" from "overweight."
(Chuck Mikolajczak)
*****
KEEP A CLOSE EYE ON SHORT-TERM BOND YIELDS (1103 EDT/1503
GMT)
Global financial markets have calmed after the banking
crisis in March.
However, as Bob Doll, chief investment officer at Crossmark
Global Investments, sees it, the key to sustaining what has
become a choppy risk-on phase since late last year is for
interest rate expectations and bond yields to stay quiet.
"A close monitoring of short-term bond yields is warranted,
because a breakout in short-term yields would likely be the
catalyst for higher long-term yields and, therefore, an end to
the risk-on phase, writes Doll in his latest "Deliberations."
Doll also outpoints that recent U.S. economic data has been
mixed, and the economy remains in "a modest deceleration phase."
However, he believes that Fed will not be able to get inflation
back to 2% without triggering a recession.
Additionally, he thinks U.S. commercial real estate presents
a potential catalyst for ending the cycle.
That said, even though most central banks should soon pause,
Doll believes that the conditions for rate cuts will not
materialize in 2023. Thus, he believes that current rate cut
expectations will unwind in the second half of this year.
"In fact, the odds are tilted towards an eventual resumption in rate hikes if our view of stick core inflation pans out. Relative prospects for select non-U.S. assets and currencies are still positive."
(Terence Gabriel)
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QUIET START TO A BUSY WEEK (1001 EDT/1401 GMT)
Major U.S. averages are all around flat in the early stages of trading on Monday with a deluge of corporate earnings due this week while economic data includes the Q1 advance reading of GDP and personal consumption expenditures (PCE) data.
On the earnings front, 12 Dow components and 178 companies in the S&P 500 are scheduled to report earnings this week, including mega-cap names such as Google parent Alphabet , Microsoft and Amazon , according to Refinitiv data.
Coca-Cola shares are up about 0.5%, giving up some gains from premarket trading, after posting first-quarter earnings and revenue that topped expectations.
On the sector front, energy paced gains in the early going with NYMEX crude futures now up more than 1%. Real estate is the weakest of the 11 major S&P sectors.
Below is your market snapshot:
(Chuck Mikolajczak)
*****
S&P 500 INDEX: STILL LOST IN THE CLOUDS (0900 EDT/1300 GMT)
The S&P 500 index continues to probe some major chart
barriers. And last week's 0.1% dip provided little clarity for
traders as they remain focused on one big billowy cloud on the
horizon.
The SPX hit a high last Tuesday of 4,169.48 before closing
out the week at 4,133.52. Thus, the benchmark index continued to
flirt with the upper edge of the weekly Ichimoku cloud, which
resides around 4,155:
Ichimoku cloud is technical indicator which displays support
and resistance, identifies trends, and measures momentum.
Utilizing midpoints of ranges, a number of lines are generated.
Two of these lines are used to create cloud boundaries. The
entire cloud is shifted forward in time in order to provide a
glimpse of future support and resistance.
Once the SPX broke below the cloud in May of last year, it
has failed to reclaim on a weekly closing basis. Indeed, rallies
failed in early-June, mid-August, mid-December, and in
early-February of this year.
Thus, the 4,155 level marks a key hurdle.
Add in additional resistance at the early-February high at
4,195.44, the 23.6% Fibonacci retracement of the March
2020-January 2022 advance at 4,198.70, the Fed-Chair Powell
August-26 Jackson Hole speech high at 4,203.04, and the 100-week
moving average, which ended Friday at 4,203.27, and bulls may
have their heads in the clouds if they expect the SPX will be
able to continue to advance.
That said, clearing these barriers will have the potential
to add credence to the view that the SPX saw a major low in
October, and suggest that its trend inflection is only
strengthening.
A sharp break to the downside can put the lower cloud base,
which is now around 3,850, as well as the 38.2% Fibonacci
retracement of the March 2020-January 2022 advance at 3,815.20,
and the March trough at 3,808.86, at risk.
(Terence Gabriel)
*****
FOR MONDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
