S&P 500 Index (SPX.I) & Invesco Dynamic Leisure & Entertainment ETF (PEJ)

After pausing for two weeks to digest hawkish central bank news and forecasts, equity markets appear to have started to resume their upward trend. Stronger than expected US durable goods orders and new home sales, and an increase in summer travel guidance from Delta Air Lines reminded investors that despite higher interest rates, economic conditions remain robust, indicating a supportive environment for corporate earnings.

Although all 11 industry groups and 29 of the 31 sectors which we monitor declined though the market pause, the overall decline was negligible as none of the NASDAQ Composite, S&P 100 or S&P 500 recorded even a common 3-box reversal.

Cyclical groups, including Industrials, Consumer Discretionary, Information Technology and Communications Services have been leading the recent market bounce, particularly Autos, Semiconductors, Homebuilders, Consumer Durables, Transportation and Leisure.

Defensive groups like Drugs and Tobacco have been lagging, as would be expected in an expansion. Resource producing sectors like Energy and Materials have also been relatively weaker, along with commodity prices. Concerns about Chinese demand continue to weigh on commodities such as Copper and Crude Oil. Friday morning, Manufacturing and Non-Manufacturing reports out of China may influence prices and sentiment.

Even with US and Canadian holidays approaching on Monday and Tuesday, the turn of the month and the quarter, brings a flurry of economic reports. Highlights include Manufacturing PMI reports from around the world and US Construction Spending on Monday, Service PMI reports on Wednesday, ADP payrolls next Thursday and US and Canadian employment/wage inflation reports on Friday the 7th. US banks passed their annual stress tests which may provide an additional boost to bullish sentiment although there were some lingering concerns about regional banks and credit card providers. We are still between earnings seasons, but confession season runs for the next two weeks ahead of results. Although economic data suggests that North American economic conditions have been positive to date this quarter, the big question for the upcoming earnings season is whether results and guidance can keep up with rising expectations and higher share prices.

In this edition of Equity Leaders Weekly, we look at the S&P 500 Index and the Leisure sector.

After spending most of 2022 under distribution, the S&P 500 Index bottomed out last October. The road to recovery has been bumpy with notable pullbacks in December and March, but overall, the trend has been upward with a series of higher lows forming and the index holding above a long-term support line.

Accumulation has accelerated since May with a bullish Double Top breakout extending into a bullish High Pole and a bullish Spread Triple Top breakout. The softness of recent days has been minor without even a three-box correction, and SPX.I is currently trading at its highest level since April of 2022.

A horizonal count suggests potential resistance near 4,615, followed on trend by the January 2022 peak near 4,805. Initial support appears near 4,220 based on a 3-box reversal.

Recent comments from airlines about increased demand for travel this summer, releasing pent-up demand from the pandemic, may also bode well for companies in the Leisure sector, such as hotels.

The Invesco Dynamic Leisure & Entertainment ETF (PEJ) bottomed out with the market but has struggled since February. The sector staged a deeper pullback earlier this month but it has started to bounce back.

A breakout over $42.15 would complete a pending bullish spread triple top pattern, and signal the start of a new upleg. Should that occur, upside resistance may initially appear near $48.45 where a previous column high plus vertical and horizontal counts converge, followed by the $50.00 round number. Initial support appears near $39.70 based on a 3-box reversal.