I will not be publishing Daily Technical Strategy reports on Thursday (5/4) or Friday (5/5) due to travel plans. Thank you for your understanding.
Wednesday’s FOMC meeting failed to provide much follow-through in Equities, but that’s precisely what did occur in both Treasury yields and the US Dollar, both to the downside.
Regional banks continue to be a drag on the larger Financials space, and DeMark related exhaustion signals are not yet in place to suggest an upside reversal. While these could be in place by Friday of this week, or next Monday/Tuesday, as of now, these are premature.
Energy continues to be hard hit, and has not really signaled any signs of stabilization. Technology was lower by -0.65% on an Equal-weighted basis, but fell more on a Cap-weighted basis. As I’ll discuss in this report, stocks like AAPL and MSFT look very close to resistance. Thus, the ability to “carry” Technology likely will dissipate temporarily as this sector likely experiences a Spring correction.
Key areas that remain favorable include the Precious metals along with Treasuries, and Equity sectors like Healthcare and Industrials. Among the major currencies, Euro and Pound Sterling are likely to continue higher in the weeks ahead.
Overall, it’s still expected that markets could defy expectations for any near-term drop, and might rally up to challenge and exceed SPX-4200 where QQQ reaches 328.
As shown below, near-term daily SPX charts haven’t really suffered much damage on an absolute basis yet, despite the recent drop in market breadth. While this drop along with continued defensive positioning might eventually matter for US Stock indices, in the short run, prices are holding areas needed and should rally back higher.
Specific areas to pay attention to lie at SPX-4187 on the upside, and SPX-4049 as support. Breaks of either side will result in follow-through in the direction of the breakout. However, the bias remains that stock indices should push higher over the course of the next week.
Apple nearing resistance ahead of Earnings
The weekly Symbolik chart below might represent the most important chart for all of Technology. AAPL has now risen to levels which constitute technical resistance, which start near $171 and extend up to $176 near last August highs.
Daily RSI has been showing negative divergence with the price rally over the last month, and DeMark related exhaustion indicators could complete a TD Sell Setup with any 5/12/23 (Next Friday) weekly close above $165.21. (i.e. remaining at current levels would constitute a confirmation of this signal) This signal is happening right below important TDST resistance.
Overall, the fact that AAPL has just pushed up to trendline resistance and could complete this signal by next Friday constitutes a technical concern for those who embrace Technology. (As a technical Analyst, Technology has been one of four Overweights for 2023. However, some consolidation in this sector looks likely between May-July).
Bottom line, until/unless $AAPL can exceed $176 on consecutive weekly closes, it looks more likely that the stock will stall out following its big run-up from late December 2022 lows when it traded below $125. (More than 35% gain since late December 2022)/
While my May UPTICKS report will not be published until next week, I am hereby removing $AAPL from UPTICKS (at a Wednesday 5/3/23 closing price of $167.45) as I do not like the risk/reward technically at this level. I will revisit and likely add this back in the months to come following some consolidation.
The intermediate-term pattern for AAPL remains quite bright, technically. My concerns have to do with near-term potential for technical follow-through only, (or in this case, the lack of potential) after this run-up. The weekly chart below shows the stock right up near key resistance, and my thought is that a stall out and upcoming reversal is likely.
This is possibly important for Technology given AAPL’s 7%+ weighting in SPX as well as its weighting within QQQ. I suspect that the inability of other sectors like Healthcare and Financials to show strong rallies to take Tech’s place during a time of lackluster AAPL performance would finally result in some broader market consolidation. At this time, I still believe SPX likely goes higher. However, AAPL looks set to stall out and I am removing this as of Wednesday 5/3/23’s close of $167.45.
Treasury yields look to be breaking down across the curve
Treasury yields followed through on Tuesday’s rapid about face and yields on 10-Year US Treasuries closed down at 3.341% on the day.
As shown below, the deterioration in yields has resulted in a technical breakdown of the recent trend. Additional yield weakness looks likely in the weeks to come with a test and upcoming break of 3.25% likely, en-route to 3.11-3.15% and then 3.00% being possible.
My Treasury yield Cycle composite (not shown) indicates that lower yields are likely into late May/early June before an important bottom.
Overall, it looks right to favor TLT, and IEF gains in the weeks to come, and I feel that Equities could move higher initially as yields decline.
US Dollar index also has begun to break down; A decline to new monthly lows looks likely
Similar to Treasury yields, the US Dollar also took a step lower following Wednesday’s FOMC meeting.
While the pattern over the last month might appear like stabilization to some, technically it remains a bearish triangle pattern and I expect this should be broken to the downside in the days/weeks to come.
Downside targets for $DXY lie near 100.78, but breaks of this level would result in a challenge of 99, which represents a 50% alternative projection of the decline from March compared to the initial peak from early last September 2022.
Euro and Pound Sterling are likely to continue higher in the weeks to come with targets near 1.125 for $EURUSD and $1.276 for $GBPUSD.
My intermediate-term view calls for a meaningful low in both TNX and DXY to materialize by June and turn back higher for a 3-4 month bounce ahead of additional downside. Thus, a rapid reversal back higher in the Dollar and rates could possibly coincide with Equity index weakness. At present, this is premature, and DXY along with TNX should press lower in May.
