Wednesday’s rally has now taken $SPX to just under early June peaks. Following a minor two-day stalling out in prices, the push back above 4140 has little real resistance until 4177-85, but can’t rule out a minor overthrow to 4200-4225 into Friday. SPX and other US Stock indices are now close to important resistance, and Wednesday’s bond reversal should be watched carefully given recent positive correlation with Equities. From a non-technical standpoint, it’s thought that any NFP number this Friday that matches estimates or exceeds should help this bond selloff (Yield rally) continue, and this might have a bearish effect on US Equities. At present, into Wednesday’s close, we still haven’t seen much evidence of negative breadth on this rally, nor evidence of any price reversal. For now, one should keep longs on a tight leash, but prices still look positive likely into end of week. Expect move to 4177-4225 into Friday, which then should reverse.
Cybersecurity stocks take on new life with Wednesday’s breakout
Don’t look now, but many cybersecurity names are moving to the highest levels in months. Wednesday’s rally back above $27 in $BUG, the Global X Cybersecurity ETF, should signal the start of some meaningful rally in many Cyber names.
BUG rose on Wednesday above three prior highs for prices, constituting a bullish range breakout. This should set the stage for gains back to the low to mid-$30’s into September.
Stocks like $CRWD, $PANW, and $FTNT are preferred among this space to buy/own, and it’s right to consider these bullish into mid to late September. Additional gains look likely in the days to come, and pullbacks into August expiration should translate into attractive risk/reward opportunities to buy dips, technically speaking.
Biotech breakout suggests future outperformance
Wednesday showed one of the more bullish breakouts in this particular sub-industry within Healthcare in months. $XBI (S&P Sector SPDR Biotech ETF) climbed above the upper resistance band, paving the way for a push back to new monthly highs.
Stocks like $VRTX, $GILD, %BIIB, $IDXX, $ILMN, $ALGN, $ISRG, $AMGN all showed superior strength on Wednesday, trading up more than 1.25%.
While Healthcare largely has lagged since July as most defensive trades have underperformed, Biotech has started to kick into gear lately, with impressive signs of bottoming in both absolute and relative terms. While any minor market pullback likely would result in Pharmaceutical names showing a bit more life, the preferred area of relative strength in 2H 2022 likely comes from Biotechnology. One should look to position long on this breakout in small size, looking to add to longs technically on any drawdown over the next two weeks.
Crude’s pattern takes another bearish turn lower
Following the lowest increase in output ever for OPEC+, WTI Crude was thought by some investors to have an excellent chance of rallying. However, precisely the opposite happened as WTI Crude fell to multi-day lows. This kicks off a decline down to the mid-$80’s, and it’s thought that Energy underperforms, and likely pulls back further in the days/weeks to come.
Technically speaking, both structural damage and Elliott-wave theory both can allow for a move down to $86, and possibly $82.50. Given Wednesday’s sharp decline, this pullback could come sooner than later, and WTI Crude’s trend deterioration should pave the way for lower prices.
As has been discussed, investors should hold off on buying dips too quickly until this decline has run its course. $OIH, $XOP could be two of the weaker ETF’s representing Energy, while it’s thought that $XLE likely outperforms on a decline (holds up relatively better).
Selloffs into September/October should translate into excellent buying opportunities for a possible push back to new highs in WTI Crude, as well as allowing many Energy names to test their 2022 peaks. At present, it’s wise to let this decline run its course.