Wall Street is riding a massive wave of optimism, sending stocks toward all-time highs and reports that Washington and Tehran have reached a tentative ceasefire agreement.
The S&P 500 is hitting new record highs, while Brent crude oil retreating to hover near $92 a barrel.
But beneath this headline relief, the macro picture does remain complicated.
First quarter GDP was revised to a sluggish 1.6% annualized pace, while hot consumer spending, as well as accelerating inflation continued to tie.
Federal Reserve's hands pushing rate cuts even further out.
Well joining us this morning to cut through the macro noise is Katie Stockton, founder of Fairlead Strategies.
Katie, good morning.
Happy Friday.
Thank you so much for joining us.
Now we are set to close out the month of May with strong gains for the major US stock averages.
But given the fact that we continue to see record highs for the major averages, I do want to get your take on the technical long-term outlook for the S&P 500.
It has been such a remarkable run, hasn't it?
We're now on our 9th consecutive up week for the S&P 500, and it is showing positive momentum from an intermediate term perspective.
We've seen whipsaws in our momentum gauges on both the daily and monthly charts of the major indices, and that is something that tends to be associated with these series of breakouts.
That we have from the market.
Even this week we saw the major indices pull out of consolidation phases, and that we call flag patterns.
So it's when you see a steep run up, a consolidation phase, which is sort of sideways price action.
And those consolidation phases are resolved to the upside, that creates a flag pattern breakout, and those tend to be short term positive developments.
So we continue to see these positive technical catalysts from the market.
And they're working.
We're just seeing upside follow through.
It is, of course, still a pretty concentrated tape in terms of market leadership, meaning that the outperformance from the technology sector is still very much prevalent.
And yet that doesn't mean the breath has been terrible.
We have seen participation expand to certain sectors, and that can help foster more upside in a rally that is so steep and prolonged.
And speaking of which, in New York morning trade, we are looking at shares of the Dow rallying to new record highs this morning and this does come on their earnings report.
But of course we are paying attention to artificial intelligence and semiconductors are the undisputed leaders of this rally.
So how are you looking at the chip trade right now and what are you seeing from a technical perspective?
Well, I, I guess it's still a trade, isn't it, in terms of having that momentum and having that relative strength, and we don't yet have widespread cell signals to suggest that it's done going higher.
What we'll be watching to that end are things like the moving averages and their slope.
We'll be watching the technical indicators, and while we had at times short-term cell signals that gave way to consolidation.
There's nothing to worry about yet on an intermediate term basis, and that tells us that that semiconductor outperformance in leadership could persist in June as we close out May here.
So we're seeing even the software sector, which previously had lagged.
Within technology very significantly now kicking in and we're seeing Oracle for one above its 200 day moving average today.
These are significant relief rallies, and it shows that within technology we're seeing a bid to the market as well, and it just shows that there is such bullish sentiment behind technology in general and as a source of leadership, the semiconductors don't really show any signs of tiring.
But when they do, we'll be quick to react because the uptrends are so steep and therein can be resolved in pretty dramatic fashion on the downside.
And Katie, as you mentioned, we are finally seeing improvement beyond megacap tech.
So if semis finally do actually cool off, do you think this improving market breadth can actually sustain the gains that we're seeing for the major stock averages and possibly prevent this projected correction?
Yeah, yeah, you know, I think there's no way that market's not going to have a correction this year.
I think we all have to sort of live with that.
That's just the nature of trends, right?
We often see sentiment get ahead of itself.
It's not quite there right now by our metrics, but I would imagine.
By the time the summer months really get started, we will see some kind of corrective action that is significant.
It doesn't mean you hold off on new purchases necessarily, especially if you're seeing breakouts, which have been very actionable in this environment.
So we're on board with the momentum for now while it stays that way, but, but like you said, I mean with the semis, when they stop exhibiting leadership, that will be probably problematic for the market because it will show a shift in sentiment that is somewhat meaningful.
So we'll be scrutinizing the action in that group in particular.
Yes, and Katie, I think perspective is key here when we're talking about all asset classes as we head into the month of June.
In New York morning trade, we are looking at oil prices dropping, WTI down, Brent down by 1% at least.
But there are some headlines out there that are saying oil is heading.
Its biggest monthly drop since 2020, but we have to think about the run up in prices we've seen.
So is the technical price action in energy actually pricing in a breakthrough when it comes to a diplomatic resolution, or do you think this is just a temporary dip in a larger uptrend?
We have seen a lot of short term volatility and for good reason in the price of crude oil.
We watched WTI crude oil prices, and they did have some support around $90 per barrel that is being taken out somewhat decisively today.
And with that, the downside to the next support is approximately $78 to $80 per barrel.
But that $78 to $80 range of course is much higher than we were accustomed to just a few months ago before the conflict.
So I think we need to contextualize it within where crude oil prices have risen from.
The new normal seems to be more in this sort of $80 range, maybe $80 to $90 range, as opposed to down in that sort of $50 to $60 range, and that is notable.
We believe that the Long term momentum shift behind crude oil prices is meaningful, and it's part of a broader bull market for commodities.
You can also say that is associated with inflation inflation broadly as well.
So I think it is one of the biggest challenges right now for the equity market.
It doesn't necessarily have an immediate impact, but even this just kind of elevated crude oil prices, I think, are somewhat of a risk for the broader market.
And finally, Katie, I do want to get your take on the bond market, in particular, 10-year Treasury yields as well as the US currency, and for once we are looking at both charts for the 10 year yield as well as the dollar index barely budging and unchanged.
So what is your technical outlook for both the tenure as well as the dollar index?
You know, our indicators have shifted to the upside behind both Treasury yields and the dollar index, and we see the dollar index still very much range bound from a long-term perspective.
But within the context of that range, there is a higher low having been established and the intermediate term gauges point higher.
The long term gauges have shown a loss of downside momentum as that range has been established.
At the same time, we're seeing yields advance from what looks like a sort of a long term triangle formation.
This is a neutral formation, but once it's resolved to the upside, you do tend to see upside follow through, and the long term momentum gauges, which have pointed lower, sort of sideways to lower for a couple of years even behind yields, are now shifting in a way that's pretty meaningful on the charts and in the indicators.
So we believe that there's probably a breakout unfolding here for Treasury yields.
That means we'll see higher yields over the coming months.
Well, Katie, we will have to leave it there for today, but thank you so much for joining us on this Friday morning.
I appreciate your time as well as your perspective.
Thank you.
