SPX rally has successfully regained 4000 at a time when bearish sentiment indicators suggested few thought such a feat might be possible. Technology’s comeback has been joined by a welcome bounce by both Financials and Healthcare; both of these sectors will need to continue rallying to help SPX get “over the hump.”
Breadth has been quite strong on the rally attempt into mid-week with multiple sectors like Industrials, Financials, Energy and Healthcare, which had all lagged in recent weeks, starting to suddenly come to life.
Helping to broaden out this rally outside of Technology and regain the damage done since early February is a necessary step towards eliminating any chance of Indices turning back down to test early March lows.
Late March very well could be “kicking into gear” to follow traditional seasonal patterns, and the month of April is also quite strong in pre-election years before a sub-par May begins. This coming April, it’s vital to watch the second full week of April, or 4/10-4/14. This has key relationships to former lows from October 2022 and also July 2022 which could result in a change of trend. It’s thought that rallies into this time likely could stall or briefly reverse.
As the hourly chart shows below, SPX has risen to levels just below its 50% retracement of the entire decline from early February. Regaining this area will be a necessary first step, while successfully lifting to new highs for March in both $SPX and $QQQ will be important.
SPX is slowly but surely nearing the “moment of truth.” It’s thought this lies at 4043 up to 4078, or 3/6/23 highs. QQQ has strong resistance near 314.
Given how important I feel that Trendlines are in Technical Analysis, the ability to exceed the current downtrend from early February in SPX should prove to be far more important than the former “False” breakout above the 200-day moving average proved to be.
At present, nothing stands out from a time standpoint to suggest Wednesday might have importance in causing a reversal. However, the ability to rally throughout this week could present some resistance into 3/24-3/27th. This time should be important for the balance of the month. Pullbacks into this zone should prove to be buyable for rallies into mid-April.
QQQ has proven far stronger; An upcoming test of 314 likely
Given the strength in Technology thus far in March, it’s no surprise that QQQ is in much better shape technically in the short run than SPX.
Prices have nearly completely recouped the decline from February, and a test of 314 looks likely. If this occurs into Friday, than my thoughts are a possible stalling out for QQQ might happen near this important point.
For now, breakouts in $AAPL, $META, and $MSFT have certainly helped markets to show better performance than has been seen in Equal-weighted Technology over the last month. However, Semiconductor strength is equally impressive, and $SOX is “knocking on the same door” as QQQ in testing early February peaks.
Until proven otherwise, patterns on both QQQ and SOX remain in good shape, and I don’t see much cause to consider that these might reverse ahead of a test of February highs.
Healthcare has begun to kick into gear. That’s a good sign
Healthcare is now higher by +1.43% over the past week in Equal-weighted terms ($RYH), while higher by more than +1.0% as per the SPDR S&P Healthcare ETF ($XLV) compared to Equal-weighted S&P 500 being higher by +0.20%.
This is a welcome start to outperformance, and as can be seen below, the relative chart of Healthcare vs SPX has begun a steep ascent. Since Healthcare is the 2nd largest sector in the S&P 500 by market capitalization at nearly 12%, and larger than Financials, seeing this sector start to advance is a good sign for market bulls.
Overall, given that the prior breakout attempt into year end failed, it will be important to exceed this level before putting much stock in thinking Healthcare is beginning a larger intermediate-term move vs the broader market.
However, Medical Devices broke out as a sub-industry group on Wednesday, and Biotech seems to be approaching a similar move. (Charts to follow) Initially, see how $RYH vs $RSP is moving rapidly towards the resistance highs of this lengthy consolidation.
Medical Devices has successfully broken its downtrend
Medical Devices has begun to turn up more sharply in recent days than either Biotech or Pharmaceutical stocks, and this outperformance makes this sub-group attractive.
Daily charts of the Ishares Medical Devices ETF ($IHI) have officially exceeded the downtrend from early February.
This is a bullish development and bodes well for this part of Healthcare to start showing better technical strength than what’s been seen since early February.
A test of February highs looks likely and this area at $56.16 looks like initial strong resistance to gains.
My favorite technical names within Medical Devices of the liquid names that make up $IHI are stocks like $IDXX, $BSX, and $TMDX.
However, some recent bullish technical price action has been seen in stocks like $OMCL, $SWAV, $TFX, $BRKR, and $TNDM and these are all favored to show further technical strength in the days and weeks to come. These are favored technical names within Medical Devices.
Biotechnology is close to breaking out; However, a bit more is necessary
Biotechnology has proven to be a bit of a disappointment and has lagged the move seen in Technology over the last month.
Its early success in rallying sharply off last Summer’s lows suggested that this sub-industry might be able to lead in any new bull market rally attempts. Thus far this has failed.
However, prices are now nearing critical downtrend line resistance, and cycle composites for Biotech are quite positive between now and late April along with 2023 into 2025.
Thus, any move back over $128 in the Ishares Biotechnology ETF ($IBB) would help to exceed the current downtrend along with helping to recapture the prior lows from last December 2022. These would be two welcome developments for Biotech bulls and would put this sector on much better footing.
Following a move above $128, I expect a rally initially back to $139.
Key Biotech names to consider technically include $REGN, $VRTX, $AMGN and $MYGN