Thursday’s decline failed to follow-through after Treasury yields broke down sharply following Friday’s economic data, and the recent range has not yet been properly broken by both SPX and NASDAQ. Technical trends still look vulnerable to breaking down into late January, but it will be important to continue monitoring Treasury yields in the days/weeks to come which continue to have an outsized influence on the near-term direction in Equities. Cycles show a possible low in late January, and despite the resilience lately in groups like Financials, Industrials and Discretionary, the lagging in Technology is likely to continue to exert downward pressure in indices for the next few weeks. However, until/unless other sectors start to weaken along with Technology, it’s thought to be increasingly likely that SPX and DJIA might not need to break last October’s lows this year. (But should be tested by QQQ) For now, the near-term hourly SPX chart shows this choppy, overlapping consolidation, and SPX should be nearing resistance, as Treasury yields reach support. The most significant near-term area to concentrate on is 3800.
Monthly returns look far superior in Pre-election Years
This Pre-election year performance shows returns going back since 1871, and similar to what I outlined yesterday, makes a strong case for why this year should be far more positive than 2022.
Nearly every month tends to be stronger except May and September when eyeing Pre-election year data vs. all other year, with a particular emphasis on the first half of the year being quite strong.
While it remains early to be long Technology as yields might still climb back to test last year’s highs, seeing some ability of this sector to stabilize will be a key part of the process as to how Equities will start to turn higher at a time when it’s least expected.
Increasingly, it looks likely technically that a late January low might be followed by a strong rally into March and then any weakness into May/June might prove to form a higher low.
QQQ getting closer towards exhaustion
One interesting development concerns the presence of TD Combo and/or TD Sequential weekly “13 Countdown” signals now present in QQQ along with popular Tech heavyweights like AAPL, AMZN, MSFT with GOOGL being very close to producing its own “13”.
While many might rush to buy these stocks on the presence of these signals, it’s important to relay the following information:
First, these signals are not yet confirmed.
Second, in many cases, a TD Sequential 13 signal might be present while a TD Combo signal is on a 9 or 10 count. (or vice versa) In other words, one signal is present, but the other is premature.
Third, the Setup count is also not yet complete. (Note, this does not have to be necessarily finished before prices turn up, but it would certainly offer a better risk/reward to buy dips, if/when this does happen)
Fourth, the fact that Setup counts along with the alternate ‘Not completed” signal (TD Combo or TD Sequential) being 3 weeks away possibly from completion, could directly line up with the 80 day trading day cycle potentially bottoming into late January.
Thus, in plain English, markets are growing closer to bottoming, but aren’t quite there (Using my own interpretation of DeMark’s indicators) Any further decline over the next few weeks could allow these indicators to show a strong confluence of exhaustion using BOTH TD Sequential and TD Combo that would likely produce a very good trading low. QQQ weekly chart shown below.
80-day trading day cycle could line up with DeMark exhaustion in late January
It’s important to concentrate on this 80-day (trading day) cycle which I discussed back in December, as this has correctly lined up with most of the highs and lows of the last 12 months.
Until/unless we see markets deviate from this, I suspect that further Equity index erosion into late January likely produces a sharp rally into the month of March.
This would line up with both DeMark signals possibly confirming on weekly charts of major Technology stocks like AAPL, AMZN, MSFT, GOOGL (which are not yet confirmed, and in the case of GOOGL, are premature)
Additionally, a bottoming within the next few weeks would also line up directly with the 1st half strength normally seen in 1st quarters in Pre-election years that many aren’t paying much attention to. Thus, earnings could be the key, but at present, buying the dip from mid-December 2022 still seems early.
The ideal scenario would involve SPX breaking 3800 coinciding with yields turning back sharply higher into late January. Equity markets might then bottom out into late January or early February and turn higher into the Spring, led by a sharp rebound in Technology. At present, as we’ve discussed, this looks early at present, and I’m expecting Friday’s rebound to fail likely starting next week.