2023 has gotten underway with a greater than average amount of range-bound consolidation, and prices lie right near levels made last December. Unfortunately, without any evidence of prices breaking back out above SPX-3900, it will continue to be difficult to think trends are bullish, particularly with AAPL and MSFT having pulled back recently to new multi-week lows. The detrimental effect of these stocks’ weakness on the SPX and QQQ is likely greater than what many investors realize when other sectors like Industrials, Financials and Healthcare are unable to help markets rally. Technically, the close Wednesday over 3829.26 means that the Santa Claus rally period was indeed positive, albeit just by a fractional amount. However, given that rates still look to push back to 4.00% on TNX, and Technology remains weak with a bearish bias in January cycles, I think it’s more likely that this consolidation breaks down under support into next week. At present, keeping a close eye on 3800(support) and 3900(resistance) makes sense.
Energy lies near key make-or-break in the short run; Yet weakness still likely to hold the larger trend
Energy as shown by $RYE (Invesco Equal-weighted Energy) vs. $RSP (Invesco Equal-weighted S&P) has held up remarkably well given a recently sharp pullback in WTI Crude.
Similar to resilience in ETF’s like $USO, this is likely thought to be due to back month futures remaining elevated, and not declining as much as front month.
Overall, in the short run, any break of RYE/SPY December lows would certainly bring about even further weakness in January. However, technically speaking, this weakness looks right to buy into come late January, expecting a sharp snap-back into March/April. Bottom line, unless one is a very short-term trader, abandoning Energy here just doesn’t make much sense. Cycles should begin to turn back up in February, and make this sector attractive to buy dips.
WTI Crude weekly cycles give reasons for optimism for buying dips
Technically speaking, WTI Crude’s weekly cycle composite (created using Cycle Finder from Foundation of the Study of Cycles) has done an excellent job of pinpointing the larger peaks and troughs in Crude over the last 10+ years.
Currently, this cycle bottoms out within the next few weeks, before beginning a sharp rally into late Spring. However, as this weekly Crude chart with its cycle composite shows below, Crude might still experience some weakness before summertime, with rallies into late spring giving way to further selloffs in price ahead of July.
This is thought to be a big positive for Equities, and it’s expected that any further drawdown in Crude will likely help the inflation picture out in the months ahead, which could be a source of strength for Equities. However, US 10-Year Treasuries remain the biggest part of the puzzle, in my view technically.
At present, the weekly cycle composite seems to suggest buying dips in late January to sell in early April.
AAPL’s weightings within SPX, QQQ make its recent weakness a concern for Bulls; Yet TD weekly exhaustion starting to line up
One interesting development for Apple and Microsoft ($AAPL and $MSFT) in the last week, despite the sideways churning in US Equity indices, concerns the deterioration in many of the high growth Technology and Discretionary stocks.
This pullback in AAPL has just declined under the key $129 area of support I’ve mentioned in reports over the last few weeks. This is a negative for this stock in the short-run, and very well could lead to $118 before bottoming out.
Microsoft has also recently failed in its breakout attempts and turned back down sharply. While I expect MSFT likely holds prior monthly lows on any further weakness, the percentage representation of both AAPL and MSFT within SPX and QQQ remain substantial. Thus, these stocks will need to start trading better before weighing in that a big rally is upon us.
Interestingly enough, QQQ, along with AAPL, MSFT and a few other key Tech stocks, now show TD Sequential and/or TD Combo weekly “13 countdown buys. ” While not confirmed, the presence of these among several key Technology names is interesting, and something to continue to watch carefully for evidence of confirmation.
AAPL daily chart below shows prices having broken triangle support, and AAPL remains under its downward sloping 10-day moving average. Some effort in recovering recent weakness will be vital before turning too bullish on Technology as a group.