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Today we tell you about the story of strength in the markets. The Dow Jones, the S&P, the NASDAQ continued to press the high side, pushing to a new swing High. For now, it seems that the long side is working. Unusually, the Dow Jones has maintained its upward momentum alongwith the S&P and the NASDAQ that had another strong day pushing to the upside. Materials though was followed by Industrials as the two top sectors on Tue, We will later take a dig into materials a little bit and look at a name or two of the stocks that fill in that sector.
Tuesday Market Recap – Dow Jones and Other Major Indices
In our Market recap, as we look at what happened on Tuesday and how that relates the short term to the long term, we see the the Dow Jones was up 0.40 and the S&P 500 was up 0.7 percent.
No Hammer Candle could be seen on the S&P or the NASDAQ, because they are in confirmed uptrends. What we remember Is, 4300 was the level we were talking about for so long, and it’s now receding in the rear view mirror, as we continue to push higher. For now, the S&P is below 4370, that’s 0.70 percent from Mondays close. The NASDAQ Composite was up even more, about 0.80 percent around 13570. Mid Caps and Small Caps, all had a decent day as well. In the Mid Cap segment, S&P 400 actually was the best performer, although all three of them were up by about a similar amount, to say just around 1 percent.
The Volatility In Dow Jones and Other Markets
For the course of the day on Tue, the VIX pushed back down. We have mentioned in the past, about how the VIX remaining lower, during a steady uptrend, is very reminiscent of 2021 where we saw a slow and steady uptrend with minimal drawdowns.
We had the deepest drawdown in 2021, and that was maybe 3 to 5 percent at the most, probably. A lot of just shallow pullbacks at this just persistent uptrend seemed to continue on.
For certain parts of 2021, it was the Fang stocks at that time, that were some pretty strong areas in the market, however later that changed but, that consistent uptrend on low volatility, is more and more similar to what we see now particularly in June 2023. Again, this is in a stark contrast to what we saw in 2022, which was obviously a downtrend, but on elevated volatility.
Bonds
While looking at Interest rates, of course we have the FED meeting this week, so tomorrow we’ll be talking a lot about the FED decision that they make and what the impact may be.
For Tue, the yield curve for the most part moved to the upside, the short end was pretty stable from Mon. 5-year yield was above 4 percent. At the end of the day the 10-year yield, where we tend to usually focus was right around 384. . Dollar Index was down about 0.30 percent, that’s using the UUP, which is a bullish dollar ETF.
Commodity
In the Commodity space, precious metals were lower, therefore gold was down about 0.75 Percent, Silver was down about 1.50 Percent. The rest of the Commodity complex was a little more geared towards Energy and soft Commodities and for most part, they were all in the green on Tue. Crude Oil prices moved higher on Tue. Although not too bad, Energy did not have a great day on a relative basis, and was up about 0.50 percent.
Finally into Cryptocurrency, there had been a lot of choppiness in the crypto Market. Its a general way of describing the cryptocurrency space, but in particular, recently we’ve had a lot of headlines and a lot of headline risk, a lot of regulatory risk coming into play into cryptos. For now, there stands a big question mark, in terms of the stability or maybe the promise of some of these different cryptocurrencies and what their potential may be.
Bitcoin and Ethereum, did not have too much of a change but, there was a lot of movement. Bitcoin that actually got up to 26400 was now just below 26000 and Ether was just below 1740 when the equity trading session was wrapped up on Tue.
Sector Performance
Quickly over on the sector side, we had mentioned that Materials had a strong day and was up 2.3 percent and we can very well tell that it wasn’t the Gold Stocks, it was the other things, like Steel Dynamics was one of the top performing names in the S&P On Tue. Materials and Industrials were the top two sectors, so Materials was up 2.3 percent, while Industrials was up 1.1 percent, Consumer Discretionary was up just over 1 percent.
On the bottom of the list, some defensive sectors like Utilities were essentially flat, Consumer Staples was up 0.40 percent and Communication Services was up 0.30 percent and therefore they were not too far from the bottom. One of the ratios, that we have always talked about quite a bit, is offense versus defense.
Now, looking at Consumer Discretionary versus Consumer Staples ( things you want versus things you need ), that ratio tends to go up whenever we make more discretionary purchases as consumers. This consequently tends to also push the ratio to the upside and that would be more of a bullish sign.
A downtrend would be when investors are getting defensive and going more to the relative defense of Consumer Staples. On Tue, yet again, we saw further fueling of that uptrend in Consumer Discretionary which outperformed the defensive sector of Consumer Staples.
Trend and Stock Watch Over Dow Jones S&P and Other Markets
At some point, the market will stop going up and that is a guarantee from a seasoned technical Analyst point of view however, What are the signs that would tell us this might happen?. We now therefore, keep looking at the RSI being overbought, which may be an early warning signal that, we have to take a pause at some point soon. We could also look at the PPO which are the MACD, which has not given a sell signal yet, but would often confirm that a top has indeed occurred.
The next chart that is interesting is the Material sector which was the strongest sector on Tue. What’s interesting about the chart of the XLB or Materials is, the head and shoulders top we see now, was never really Confirmed. We have repeatedly seen a head and shoulders pattern in this chart.
The head and shoulders pattern topped the peak in February, then we also saw that same pattern with the lower high in December and then that similar pattern again with the lower high in April. If we take a trend line connecting the lows between those highs, that’s called the neckline of the Pattern. We can say that the patterns would initiate as a top, if and when it ever broke down through the Neckline but, that never happened and we ended up finding support at 75 and now we’re rotating higher. Material sector is in more of a bullish position, with the momentum Improving and this may be a key thing to Watch.
Finally in a market that is going higher, we would be watching for double topping patterns, for divergences, for bearish candle patterns and something that might suggest that we may rotate a lower.
For some early warning signs, that things might have gotten overheated, calls for a look at the stock chart of AMD, which has now potentially made a double top around 130. We look at the high it made from the end of May, then we also look at what happened to AMD this week. This is called the bearish engulfing pattern, where we have an update, followed by a down day that engulfs the range of the first day. Now, that’s just a short-term sales signal that tells us that the short-term conditions are negative. We however keep an eye on this stock chart to see if it follows through.
