There was a rotation into small caps this month as the Russell 2000 gained 3.6% for June while the Nasdaq and S&P finished lower by 2.8% and 1.1%, respectively. The Russell 2000 is also outperforming for the year and it was the best first half of a year for the index since 1991. For July, the biggest catalyst will likely come at the end of the month with the July 29th Fed rate decision. This will be just the second decision under new Fed chair Kevin Warsh. Odds for a rate hike have been increasing since he took over. For the July meeting, current odds are still in favor for no change in rates but only at about 66% with a 25bps hike at 34%. For now there is only one hike being priced in through the end of 2027.
In last month's update I said that I was beginning to get concerned of a pullback as it was nearly impossible for the indices to open above their primary uptrends. This, in my opinion, led to the technical pullback we got in June. The same problem is still there for next month. The Nasdaq's primary uptrend (white) will be around 27,200 in July which is about 3.5% away from today's close of 26,213. It's not going to get that big of a gap up tomorrow to start July, so this 27,200 area will be resistance on a rally attempt. It will also have more resistance at 27,450-27,475 from its prior uptrend (purple) which was the first key resistance level I mentioned in last month's update to watch out for. That level in June was around 27,200 which is where it got rejected at (27,190.21 high for June). It never broke through this level so it remains valid resistance. If it can break through both of those levels, the last resistance that would potentially be in play for July would be at 28,000-28,100 from its prior uptrend (yellow).
On a pullback, the first support to watch will be from its prior uptrend (yellow) which will be right around 26,000. The next support is much farther away at about 22,200 from its prior downtrend (blue). This level is about 15% away though, so it's very unlikely that it actually gets tested without some major catalyst. The more likely scenario is that the Nasdaq starts a new primary trend next month but we'll have to wait and see how it finishes July for the direction of that new trend.
The S&P also failed to get the gap above its first key resistance level around 7,630 in June that I mentioned in last month's update. It got rejected right around that level on the early rally attempt, putting in a high of 7,620.90. It did close below its last primary uptrend, and still starts a new uptrend as it made a higher high. However, it's again in the same boat as the Nasdaq as it is unlikely to get a gap above its new primary uptrend (white). This new primary trend will be at about 7,625 in July, and that is about 1.7% away from today's close of 7,499. So it's in the same position as it was last month.
Assuming there is no big gap up above this 7,625 area tomorrow, that area will act as resistance on a rally attempt in July. If it does manage to get that gap up tomorrow, or if it breaks through it later in the month, then the next resistance will be at about 7,790 from both of its prior uptrends (purple and orange) where they intersect. After that, the next resistance to watch would be at 8,120-8,125 (yellow) then its prior uptrend (purple) comes into play again from the top of the range at about 8,330-8,335. The last resistance that would probably be in play on a continuation of the rally would be from its primary uptrend (white) at 8,375-8,385.
On a pullback, the first big monthly support to watch will be at 6,950-6,960 from its prior uptrend (orange). This is about 7% away from today's close of 7,499. If that doesn't hold, the last support that would probably be in play would be from its prior downtrend (blue - top of the range) around 6,530 which is nearly 13% away.
The Russell 2000 looks different here as it closed above its previous primary uptrend to start a new uptrend as well, but it will likely open above its new primary uptrend in July and continues to look the healthiest. Its new primary uptrend (white) will be at 2,965-2,970 next month which is well below today's close of 3,024. So as long as there is no big gap down tomorrow to start the month, that area would act as support on a pullback. The first resistance to watch on a continuation of the rally will be at 3,070-3,075 from its prior uptrend (orange). If it can break through this level, the next resistance would be from its next uptrend (purple) at about 3,130. After that, the last resistance potentially in play for July would be from its new primary uptrend (white - top of the range) at 3,315-3,325 which is around 10% away.
On a pullback, that primary uptrend will be the first support at 2,965-2,970 assuming there's no big gap below it tomorrow. This level is almost 2% away so it's possible, but improbable. However it could potentially break down below that support later in the month, in which case the next support to watch would be from its prior uptrend (blue) around 2,895. If that does not hold either, its next uptrend (orange) will be support at 2,660-2,665. The last support that would potentially be in play on a big sell-off would be from its prior downtrend (yellow) at 2,560-2,565. However this is around 15% away and would also require some kind of major catalyst.
