Recent stalling out in indices hasn’t shown any real signs of turning down sufficiently to suggest US Equities are rolling over into this week’s economic data. Small high to low ranges on light volume make perfect sense given lack of large positioning ahead of CPI/PPI this week. Breakouts above SPX-4200, DJIA-34400 and NASDAQ Comp-12,228 would be quite bullish post FOMC if this occurs, and could likely lead to a short squeeze, given bearish positioning.
Technology has shown only scant weakness over the last few trading days, but this has been largely due to Large-Cap Technology stocks showing mild underperformance vs. thinking the broader Technology space is rolling over. Equal-weighted Technology is doing better than Technology, but Tech is the only major sector down on a rolling 5-day basis (-0.67% for $RYT vs. -1.57% for $XLK).
Technology underperformance in recent days has caused the broader market to look weaker than its actually been. Sectors like Financials, Discretionary, Energy, Materials were all up nearly 1% in Equal-weighted terms in trading Tuesday. Thus, a -0.9% decline in Technology camouflaged the market a bit, making it appear worse than it actually was.
Financials, to their credit, have outperformed the SPX over the past week, and near-term technical progress suggests this could continue potentially into late April. One-month pattern breakouts in a technical reverse Head and Shoulders pattern is bullish for $XLF.
Minor stabilization and bounce in both $DXY and $TNX is thought to be minor profit-taking ahead of this week’s economic data. Both DXY and TNX should likely resume their respective downtrends following PPI this week.
Metals and Energy have both turned back higher to multi-day highs on a close based on Tuesday’s close in WTI Crude along with Gold and Silver. I expect rallies in all of these into late April, technically speaking, and expect a commodity rally into May.
DJIA technicals are not dramatically different from what’s being seen in SPX and QQQ. The “Dow” is getting closer to key trendline resistance at 34,400, which equates to SPX 4200 and is essential to surpass to have expectations of a short-covering extension to the recent rally. I expect this likely happens over the next 3-5 trading days, and as of 4/11, there is little to no real technical evidence of any peak for DJIA, similar to QQQ and SPX.
Tech weakness looks minor in scope; No trend damage
Following up on $AAPL’s daily chart which was highlighted the other day, it’s important to take stock of how Technology is faring overall, given underperformance over the last week.
As Equal-weighted ratio charts of Invesco’s Technology ETF ($RYT) vs. Equal-weighted S&P 500 ($RSP) show below, there’s been little to no real deterioration in the broader uptrend.
Minor weakness has transpired this week in Technology. However, this has proven to be far greater in Large-Cap Tech vs. equal-weighted Technology.
Ratio charts have shown minor weakness only, as shown below. However, the broader uptrend remains very much intact and no trend deterioration has been seen in the heavyweights like $AAPL, $MSFT, $GOOGL, or $META. Until/unless this occurs, meaning that uptrends from last December start to give way in names that dominate the broader indices and ETFs, this weakness is thought to be constructive and buyable, particularly given the comeback in other sectors like Healthcare and Financials.
Financials arguably making short-term breakout on XLF chart
One interesting development is happening in charts of some of the Financial ETF’s like $KBE, $KRE and $XLF (see below).
XLF has officially exceeded the “neckline” of a reverse “Head and Shoulders pattern” (H&S) spanning more than a month. Additionally, daily relative charts of $XLF vs. $RSP in ratio form (not shown) have triggered and confirmed TD Sequential “13 Countdown” exhaustion signals (Buys) as of Tuesday 4/11/23’s close.
This is a bullish technical development, and should lead Financials to outperform in the days/week(s) to come.
My upside target for XLF lies at $33 initially, but I suspect that rallies might carry a bit higher, up to $33.77, or the 50% retracement ratio of the entire decline from February into mid-March.
Overall, we’ve seen stabilization in the banks, and now sufficient strength in Financials to argue that a short-term rally is getting underway (at a minimum).
The combination of a nice bounce in Financials and more broad-based strength in Healthcare and Energy is thought to be quite constructive, given just a minor “backing and filling” in Technology thus far. Barring any severe decline post CPI reports on Wednesday, it still looks likely that Equity markets can push higher, but might be led more by Financials in the short run than Technology.
Leading sectors like Transports, Housing both showing improvement
Finally, it’s important to see that some of the leading sectors are beginning to demonstrate meaningful technical improvement.
The Transports, shown here by daily charts of the DJ Transportation Average, (DJT) have broken out above downtrends from early February as of Tuesday’s close (4/11).
This is a bullish comeback and is concentrated not just in the Airlines, but also in many of the key Trucking names, as well.
Daily closes back above 14,445 should lead to rallies to at least 14,700, but more likely just below $15,000 to $14,976. Only a decline back under $13,820 would cancel out the benefits of the DJT rally this week.
Overall, this ability to recoup weekly highs in leading sectors like Transports, Housing and also Semiconductors after minor weakness would help to establish some further credibility in this rally.
