Posted in
Education
By: Tom Gentile
on July 12th, 2024
Stocks, Bonds, Currencies, and Commodities
Both the CPI and PPI came out this week.
These two economic reports give a guage on prices consumers are paying for goods and services (CPI) and prices producers are getting padi for their goods and services (PPI).
The PCE report is the Personal Consumption Expenditures price index. This is the Fed’s favorite or preferred inflation barometer and they it to helpguide them when deciding to change interest rates or not.
One can assess what the PCE will come in (higher or lower) based on the numbers reported by both the CPI and PPI. Based on these latest numbers for each the PCE may show just a small increase in prices in June.
The thing about these reports is it si showing inflation is cooling and this is leading to many believing the Fed is likely going to offer a rate cut maybe as early as this September.
Rotation of Capital
A rotation of capital is where money that has been flwoing strong in to one are or sector of the market comes out of that sector and flows into another.
We saw this start Thursday as the high flying and very bullihs tech sector was selling off pretty strong.
These tech behemoths like MSFT, AMZN, NVDA, GOOGL, etc.. which has accounted for a majority of the percentage gains in the S&P for the year had a pretty strong one-day drop on each.
The reports are that monye was flowing into some housing sector and small-caps.
Sector rotation happens when the perceived valuations in a sector and or the prices in that sector have run up so strong that folks want to lock in profits believing the prices are overbought and due to settle back. In doing so they then look to an undervalued sector they expect to see better gain potential in and start to depliy their capital there.
Not sure how long this may continue and money can still find its way back to tech sooner than expected.
Equities
SPY
When I place the Elliott Wave tool on the chart for SPY I can see the target, which is the middle part of the target and where the number 5 is shown, has been met.
There is a horizontal line both under and above the number 5.
If SPY continues to march higher I could see it reaching the upper price target, which is at $585 and change.
Just because their was a sell off in tech the last couple of days. Doesn’t mean the SPY will do so as well.
What I see is a broadening out of buying in to other sectors which may offset the tech selling and could result in SPY continuing to see gains.
TLT
Elliott Wave shows a potential target to the downside reaching just under 86, (where the number 5 is shown).
You can also see the lower and upper horizontal line establish the price range of the wave 5 (it’s lower and higher potential price targets.
Another technical view is the green, dotted lines which is a descending and ascending trendline, establish a resistance and a support.
These two lines appear to be coming to a point, which would form a symmetrical triangle pattern.
When it comes to a point (or sooner) TLT could break out and when that does one can assess a further move in the direction of the break for TLT.
Should it break lower the Elliott Wave ranges lower seem more and more likely.
Fine with me as a move lower in TLT could mean a higher move in SPY and equities.
UUP
UUP is my representation of the US Dollar.
Typically, when the US dollar is strong it puts pricing pressure on foreign currency and the exchange rate between the two.
This means the buying power of those currencies isn’t as strong as it was with the dollar lower.
What I see happening now is a breakdown of the ascending support line.
One can monitor prior pivot points lower on the chart to see if one becomes a price support for UUP.
If this is a false or temporary breakdown and strength kicks in we can see the wave 5 extension area.
As I see it UUP trades lower that too could bode well for US equities as there is often an inverse relation between the two.
Commodities
Oil – USO
The bullish seasonal pattern for oil and energy is now over and the pattern played out in a bullish fashion yet again this year.
Now I monitor the chart and stay abreast of what’s going on with OPEC + and other fundamental situations going on with OIL.
Not that I trade off fundamentals, but they dictate what investors do with either purchasing or selling shares of these stocks and that is reflected in the technicals and THAT is what I trade.
$82.50 is the overhead resistance level I see on USO.
Not only do I need to see USO trade above that, but also close above it.
Some aggressive traders may take a fresh, one-day breakout as a means to initiate bullish option trades, whereas I like to take a bit of a cautious approach and see if it can stay closed above that resistance for 3 days.
Precious Metals – GLD
When a stock breaks out of a triangle or sideways pattern it tends to go further in the direction of the break equal to the widest point of that preceding range.
I have had $230 pegged as a possible price target to the upside on GLD for a couple of weeks now.
I also said that even with that price target in mind it is possible GLD tests that overhead resistance price of $223. It reached that the last two trading days.
That $230 target was based on the width of the triangle (and my assessment the widest width was $14-points).
A revision can be made based on assessing the sideways trading range between 212 support and 223 resistance, which is 11-points and at least deem now an 11-point move tacked on to a break out of 223 taking GLD to a slightly higher target of $234.
To your success,
— Tom Gentile
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