Dow Jones Transportation Average (DTX.I) & SPDR Portfolio Developed World Ex-US ETF (SPDW)

The market advance which started back in March has continued to gain traction in the last week, with market breadth continuing to expand. Country indices in North America and around the world both in developed and emerging markets continued to advance.

In North America, all eleven major industry groups posted positive performance, and leadership continued to widen out from Technology to include Industrials, Consumer Discretionary and Communications Services. Subgroup action also highlights increasing breadth with a wide variety of groups starting to move up including steelmakers, consumer services, forest products, social media, retailers, energy and video games.

Yesterday’s trading action was particularly significant as US equities showed resilience in the face of a more hawkish than expected Fed. The FOMC delivered what could be considered a “hawkish hold” pausing interest rate hikes as expected but signaling through the Fed Funds Dot Plot survey that the bulk of Fed members now expect to see potentially two more rate hikes this year. The Fed raised its Core PCE inflation forecast, indicating inflation in wages and services is not coming down as fast as previously hoped. It also raised its GDP forecast and lowered its unemployment rate forecast for this year, indicating signs that the economy has remained robust through the recent wave of monetary tightening, which may be read by some investors as a bullish sign.

The wider investment community also took the Fed news in stride as the US Dollar and the 10-year treasury note yield slipped slightly yesterday, indicating that investors still think that the current rate hike program is likely in its later innings even if another few hikes are necessary before the end. Commodity action has been indecisive with Copper starting to bounce back but Crude Oil remaining under pressure.

Central banks continue to dominate the economic calendar in the coming week. The European Central Bank and the Bank of Japan are meeting this week, while the Bank of England and the Swiss National Bank meet next week. Most of these banks are still far behind the Fed and with the exception of Japan, are generally expected to continue their own respective rate hike programs.

The economic calendar for the coming week is otherwise pretty light, headlined by US retail sales today, China retail sales tomorrow, and Canada retail sales next Thursday. For the US, Monday is the Juneteenth holiday, and next Thursday brings bank stress test results.

In this edition of Equity Leaders Weekly, we look at breakouts in international developed markets and the Transportation sector as a sign of increasing bullish market breadth.

The equity market rebound which started in October of 2022 has increased in breadth over the course of this year. While the rally initially looked contained to mega-caps and technology with the S&P 100 (OEX.I) and the NASDAQ (NASD.I) breaking out first, over the last few weeks, they have been confirmed and joined by the S&P 500 (SPX.I), and more recently, emerging markets (EEM) and the small cap US Russell 2000 Index (RLS.I) which we highlighted in last week’s edition of the Equity Leaders Weekly.

This week, the latest index to provide confirmation of the current market advance and improving breadth is the Dow Jones Transportation Average (DTX.I). With the exception of a short pop and drop in February-March, DTX.I has been trending sideways between 1330 and 1460 since December. In May, DTX.I successfully held above a long-term support line and this month, Transports have come under renewed accumulation, completing bullish Double Top and Spread Triple Top breakouts and snapping another downtrend line.

Previous column highs and lows suggest potential upside resistance in the 1558 to 1574 area, then near 1606 and 1704 on trend. Initial support appears near 1397, just below the 1400 round number.

International Equity markets continue to attract interest from investors and capital flows. In the June 8th edition of the Equity Leaders Weekly, we highlighted a breakout by the iShares MSCI Emerging Markets ETF (EEM). That rally continues and this week, developed markets have joined the party.

The SPDR Portfolio Developed World Ex-US ETF (SPDW) bottomed out in October and staged an initial recovery rally in November. Since then, SPDW has continued to advance at a steady pace, establishing a new uptrend of higher lows. This week, SPDW broke through its May high to trade at its highest level since April of 2022, completing another bullish Double Top breakout and a Bullish Catapult.

Next potential resistance appears near $35.55 where a vertical count and previous column high converge, followed on trend by the September 2021 peak near $36.65, and $38.15 which is based on a horizontal count. Initial support appears near $31.85 based on a 3-box reversal.