The markets continued their rally in February with SPY now up nearly 8% year-to-date and QQQ up almost 9%. After a 6.5% correction for small caps to start the year, IWM has begun to participate with the rest of the market rally as it hit new highs for 2024 this week and is now up about 2.5% for the year.
Last month we saw a hot CPI report which seemed to just be a speed bump for the market rally as it the dip was bought again. And this past week we got an in-line PCE report (the Fed’s preferred inflation gauge) which appeared to ease the worries of inflation ticking back up. This sent rates lower again and helped spark another strong market rally to close out the week.
The in-line PCE report also increased odds for future rate cuts, but the market still expects the first cut in June with a 63.6% chance. This is a drastic change from the beginning of the year as the first cut was expected in March and there were a total of 7 cuts being priced in for the year. Since the beginning of the year, March odds of a rate cut have fallen from 86.5% down to just 4% now. May also appears to be off the table with just a 18.62% chance. Now, markets are pricing in 5 cuts for the year. However, the Fed has said they still only expect 3 cuts this year, so the markets still seem to be a bit too optimistic.
Looking at technicals now, SPY, QQQ and IWM have already broken through the February highs. SPY opened above, re-tested and held monthly uptrend support on Friday which is at about $508.50. So for now the bulls remain in control as long as that $508.50 support holds. The next monthly resistances to watch will be at about $516.50, $520.50-$520.75, $522.50-$523, $525.25-$525.50, $526-$526.50, $527.25-$527.50, $528.50-$529 and $533-$533.50. If SPY breaks through $508.50 support, the next supports to watch will be at $503-$503.50, $502-$502.50, $501-$501.50 and $497-$497.50.
For QQQ, it also opened above monthly uptrend support, re-tested and held it last week and it broke through the February highs. The next resistances to watch will be at $451-$452, $453.50, $455.50-$456, $461-$462, $463. The first support to watch will be at $439-$439.50 which it opened above and held to start the month. If that breaks, then the next levels to watch will be at $431.50-$432, $429.50-$430, $428.50, $427-$427.50, $417.81 (last month’s low) and then $416.50-$417.
