The near-term picture has improved quite a bit technically with Friday’s upside follow-through on strong breadth after Thursday’s sharp reversal. Incredibly enough, SPX and NASDAQ have managed to recoup 1/3 of the decline from early February in a mere two days’ time.
Healthcare and Energy showed promising strength, and both of these groups are favored for outperformance in March, with a particular interest on Biotechnology
Small-caps are nearing a breakout vs. Large-Caps on relative charts and this likely happens next week
Breadth expanded to over 4/1 bullish on Friday’s upside follow-through, and QQQ along with SOX both recouped areas of former breakdowns near 2/10/23 lows
Yields failed to rollover sufficiently to call a top in long-term rates. However, this looks near and Equities can certainly move higher without Yields having to immediately confirm this move. (Back in October 2022, Equities bottomed nearly two weeks ahead of rates peaking)
As shown below, the act of Semiconductor indices like $SOX, along with QQQ (shown below) getting back up above 2/10 lows, likely will drive Technology up at a faster rate in the short run than the broader market. However, Biotechnology and Exploration and Production Stocks look attractive for outperformance in March.
Bottom line, movement over SPX 4060 should drive prices up to test 4200 initially. QQQ looks to rally to 310-313 before initial resistance sets in. Pullbacks should be buyable on any weakness next week, and only a close under this past week’s lows would postpone rallies.
Biotechnology breakout bodes well for recovery as Healthcare outperformed sharply during Friday’s trading
The NASDAQ Biotechnology ETF ($IBB) achieved a meaningful trend breakout Friday which bodes well for Biotech to start showing much better strength in the weeks to come.
Daily charts show that this breakout also successfully recouped the former lows from late December 2022. Thus, the combination of two technically significant areas being surpassed raises the odds that IBB has bottomed.
Technically the entire pattern from December 2022 looks like a consolidation pattern that should give way to a push back to test $138 and then drive prices up to $150 which would be the next level of meaningful resistance.
Overall, I like Biotech to outperform within Healthcare and expect that Healthcare as a group should start to turn back higher and show better relative strength after the last few months of underperformance.
Key names that I like technically of the larger-cap liquid Biotech names are $REGN, $VRTX, and $AMGN. These all appear like attractive technical longs, along with IBB itself.
Breadth neared levels that marked former lows
This chart of the percentage of SPX names above their 20, 50 and 200-day moving averages (m.a.) shows why near-term breadth contraction set up for a chance to buy as SPX neared 3900 and bottomed right at 3925 this week.
The percentage of SPX stocks above their 20-day moving average pulled back under 20% early this week. That was one sign, along with price/time analysis and Fibonacci projections, that suggested a possible low could be approaching.
See that the last few times this occurred, namely mid-December 2022, early October 2022 and June 2022 all marked attractive times to buy dips.
This time was more bullish however, as the percentage of stocks above their 200-day m.a. was much higher at 55%. Thus, many chart patterns improved dramatically with the rally into early February.
Overall, movement back above SPX 4060 should allow for a test and breakout above February highs.
Gann’s Mass Pressure index for 2023 gives reason for promise
While the Mass Pressure cyclical composite that I showed back in 2022 was nearly a spitting image for stock prices last year, it showed a bit of consolidation might in store for early 2023 before a rally higher in March.
The early January advance looked to occur right on schedule. However, this composite turned down in mid-January, and remained choppy until late February with particular weakness in the final two weeks of February.
This hasn’t been a poor guide thus far, and given the prominence of the 60-year pattern selling off into 3/1 before turning back higher, US Equity indices look to be potentially following suit again, right on schedule.
If this composite proves correct, March and April could both be strongly positive before some consolidation in May.
Pre-election year performance typically shows above-average strength in March along with April that are far stronger than normal. The first couple of days of March show promise thus far and QQQ has already gotten above levels that make further gains likely.
SPX will still require a move back over 4060, which is less than 15 points away given Friday’s (3/3) close.
I suspect March will yield positive performance, though there could be some sector rotation back into Healthcare and Energy which have lagged over the first two months of 2023.
Overall, exceeding SPX 4060 should allow for a move up to 4200 initially. Then a rally up to last August’s (2022) peaks near 4325 could be in store. One should keep close eye on 1963, as it appears that the 60-year cycle might continue to have influence on 2023, 60 years later.
