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The 2nd quarter got kicked off with some minor stalling out in many sectors, including Technology while both Energy and Healthcare surged. Market breath finished flat, largely given Technology’s weakness but no meaningful weakness is expected out of Tech.
Near-term momentum and breadth continue to press higher and have not yet reached overbought levels. Technology in particular should likely press higher into April 11-12 which represents the first time-based area of possible confluence for a change in trend in April.
Technical structure shows prices just below the upper border of a meaningful triangle formation which has been building since last August peaks, with a very symmetrical pattern of lower highs and higher lows. This area might offer some near-term resistance to this rally. However, any move above early February peaks at SPX-4195.44 would turn the structure much more positive, arguing for a continued rally up to test last August’s peaks just above 4300.
The Energy strength along with Healthcare bounce looks much needed at a time when the US Equity rally had been largely technology dominated. It’s thought technically that widespread bearishness in Technology given possible future earnings woes doesn’t constitute a reason to sell Tech given the degree of strength in recent months.
Market breadth is growing stronger and stronger in the near-term and the window for the bears is thought to be growing smaller. Given that a further rally in $QQQ looks likely up to 326 into mid-April, this might translate into an area in price and time to consider fading this move. However, as of Monday 4/3, this still looks quite premature in my view.
Stocks like $AAPL and $MSFT show little to no evidence of peaking out. It’s important for these big index constituents to show some evidence of tiring before growing too negative on expecting Technology to peak based on overbought conditions and/or the possibility of further negative earnings. Prices paint a rosy picture, and technical trends remain constructive for Tech.
WTI Crude’s false breakdown paved the way for Monday’s (4/3) above-average breakout back higher
As the old adage goes, “Sometimes a false breakout can prove stronger than a breakout itself” (Unknown) The decline in WTI crude into early March looked quite negative but failed to undercut the key $60 level of support.
The recent relief rally gave some doubts about the viability of that decline for Crude. Now, Monday’s Saudi output cut resulted in a huge technical breakout which happened on much heavier volume and caused price to exceed the recent downtrend.
Thus, moving back into WTI Crude’s recent base after breaking down proved to be the first signal and now Monday’s (4/3) rally confirms that this cyclical upswing is very much underway.
While price might look extended after such a big rally on Monday, it’s right to be overweight Energy and expect that pullbacks over the next week should prove short-lived and make WTI and Brent Crude as well as many Energy stocks more attractive from a risk/reward standpoint.
As shown below, this WTI Crude breakout looks to be a clear technical positive that likely has caught many investors offsides, yet again, following short positions having reached multi-year highs.
As discussed, a possible perfect storm came together last week when considering bearish sentiment, bullish seasonality, near-term oversold conditions, and cyclical positives. (Perfect storm in this instance meaning a very good storm)!
While it’s difficult to speculate just yet on Crude getting back to the psychologically important $100 level, I expect the trajectory for Crude to prove bullish and prices should make further headway in April into May before any stalling out.
Energy ETF’s like $XLE look quite bullish after Monday’s surge
As might be expected, Monday’s (4/3) rally in crude led to above-average movement in many of the popular energy-based ETF’s like $XLE, $OIH and $XOP.
As charts below show, $XLE, the SPDR Select Energy ETF, broke back above prior lows of its pattern and exceeded the downtrend from early 2023. This is a very bullish technical development and should lead Crude back higher to challenge the highs of early 2023 in the low $90’s.
Stocks like $MPC and $HES are a couple of my favorite technical names within Energy.
Treasury rally post ISM manufacturing data should drive yields back down to test and break recent lows
The downturn in yields Monday (4/3) coincided with both cyclical composites as well as weekly momentum trends which argued that last week’s minor bounce in rates likely would prove short-lived.
Movement down to 3.29% looks likely for TNX which could be just a temporary area of support ahead of a larger breakdown to 3.15%, then 3.00%.
My cycle shows the possibility of lower yields into May before a meaningful bounce gets underway. At present, the rolling over in yields is clearly bearish for yields technically in my view in the short run (Bullish for Treasuries from a price perspective)
Given the unraveling of recent correlation trends, it’s unlikely that Equities should definitely move higher throughout April, despite a good likelihood of both Treasuries and Equities both moving higher into next week.