Key Points
- The S&P 500 closed above 6300 for the first time, supported by strong liquidity
- But declining Trend Index peaks warn of a retracement
- Consumer Confidence remains weak, and the Conference Board Leading Economic Index signals a recession
- Gold and silver rallied as the dollar weakened
The S&P 500 closed above 6300 for the first time, but declining Trend Index peaks warn of selling pressure. Expect retracement to test support at 6100.
The Dow Jones Industrial Average also signals weakness, with declining Trend Index peaks indicating selling pressure.
The Broad DJ US Index (red) has underperformed the DJ World ex-US index (blue) over the past six months.
Financial Markets
Financial markets grow increasingly supportive, with the Chicago Fed National Financial Conditions Index (NFCI) declining to -0.54. Values above zero are considered restrictive.
Bitcoin has retraced slightly from resistance at $120K, but still signals bullish market conditions.
Treasury Markets
10-Year Treasury yields declined to 4.35%, but rising Trend Index troughs signal continued buying pressure.
Economy
Consumer confidence remains low, with the Conference Board index declining by 5 points to 93, similar to levels during the 2020 pandemic.
June’s retreat in confidence was shared by all age groups and almost all income groups. It was also shared across all political affiliations, with the largest decline among Republicans.
The Conference Board’s Leading Economic Index (LEI) declined to 99.8% in June. Six-month growth in the LEI (blue) fell to an annualized -5.6%, below the -4.1% that signals a recession (marked in red).
The black line on the above chart indicates negative growth in more than 50% of the LEI components below over the past six months. A broad decline confirms the recession signal.
Dollar & Gold
The Dollar Index retreated below support at 98, signaling another decline. A breach of support of 96.50 would strengthen our long-term target of 90.
Gold rallied to test resistance at $3,400 per ounce. A breakout above $3,400 would offer an immediate target of $3,500 and strengthen our year-end target of $4,000.
Silver is testing resistance at $39 per ounce. A breakout would offer a target of $42, but declining Trend Index peaks warn of stubborn resistance.
Conclusion
The S&P 500 closed at a new high, but declining Trend Index peaks warn of selling pressure.
The Dow Industrial Average respected resistance at 45,000, failing to confirm the S&P 500 bull market signal.
Financial market conditions indicate strong liquidity, but consumer confidence is weak, and the Conference Board Leading Economic Index signals a recession.
The US Dollar Index retreated below support at 98, triggering a rally in gold and silver. A gold breakout above $3,400 would offer an immediate target of $3,500 and strengthen our year-end target of $4,000. A silver breakout above $39 would offer a target of $42, but declining Trend Index peaks warn of stubborn resistance.
Acknowledgments
- CoinDesk: Bitcoin
- Federal Reserve of St Louis: FRED Data
- The Conference Board: Leading Economic Index
- The Conference Board: Consumer Confidence
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
