The turn back higher Friday occurred on fairly broad-based participation with an even more pronounced level of volume into Up vs Down stocks. Yet, markets seem to be at a pivotal nature yet again, after a sharp rally which has not done much to improve the short-term structure.
Treasury yields look to have snapped back into the recent range that was violated, and most Elliott patterns call for a possible decline into late January before Equity markets can bottom out.
Overall, breadth continues to improve, yet Advance/Decline line hasn’t yet broken out, and TD Sell Setups are now in place for $SPY and $QQQ on hourly charts.
As seen below, prices have lifted sharply from Thursday into Friday’s close on the right hand side of the hourly S&P charts. Yet, it will take a move back over 4035 to have confidence that a large rally is getting underway, which at the present, is premature.
Conversely, SPX-3900 is important, which held as support in Thursday’s (1/20) trading. If this is undercut next week (which might occur on negative Tech earnings) this would directly line up with cyclical projections of a possible late January low.
Support under 3900 looks to occur between SPX-3825-3850 and would be considered attractive support for SPX heading into a time for a possible market low. Stay tuned.
Small-caps have begun to turn up sharply
One of the definite “arrows in the quiver” for Stock market bulls in recent weeks concerns the degree that Micro and small caps have suddenly sprung back to life.
Charts below highlighting the $IWM show this recent breakout of the minor downtrend, and are directly below a more important area of resistance at $190.
If/when this is exceeded, it’s thought that Small-caps will have begun to long road to recovery after a difficult 2022. Any advance over $190 would suggest that $IWM should push higher to at least $215, and could eventually move back to test peaks from 2021.
Last year’s laggards have been this year’s leaders
As commonly seen most years, the laggards heading into End of year typically show better relative strength as a new year gets underway.
Last year showed strength primarily in Energy, but above-average outperformance in many of the defensive sectors like Utilities and Consumer Staples.
This year has primarily been led by Communication Services and Consumer Discretionary, two of the worst performing groups of 2022. Materials have also led performance given the decline in the US Dollar and Treasury yields which has positively affected the metals.
I’ll be unveiling my sector over/underweights next Tuesday during my Annual Technical Outlook webinar for 2023. However, in the short run, as discussed yesterday, the breakdown in defensive sectors like Utilities and Consumer Staples is certainly bearish for these sectors in the short run.
Furthermore, I expect both Energy and Materials strength to continue this year, particularly in the first half of 2023 given an ongoing declining US Dollar. Technology, which is a huge sector of importance for US markets, looks to be a work in progress, but certainly is important to have working if expecting markets to stage a major comeback.
S&P SPDR ETF’s ranked by Year-to-date (YTD) Returns:
Natural Gas looks to be approaching a low
Most investors in the Northeast might understand why Natural Gas ($NG_F) has been falling lately, as winter temperatures have been higher than normal. This coupled with an uptick in production and lackluster storage withdrawal might make most continue to think lower prices are on the horizon.
Yet, prices aren’t likely to fall under $3.00 MMbtu in the weeks ahead, technically speaking.
Prices have gotten as oversold as they were back in October 2022 based on RSI (Relative Strength index) readings on daily charts.
- DeMark exhaustion looks to be within 1-2 days potentially of signaling downside exhaustion on daily charts of $UNG, $BOIL and February and March Natural Gas futures contracts.
- Cycle composites show Natural Gas spiking into the month of April which could get underway sometime in the next two weeks.
Thus with a lot of winter still ahead, it’s likely that $NG_F does not fall under $3, but stabilizes into late January and begins to rally.
I like buying Natural Gas in small amounts early next week, looking to add when proper evidence of a move back to new multi-day highs occurs. I expect to see prices back up near $5 which might surprise those who are planning on Sub-$3 NG_F in the weeks ahead.
Weekly Cycle composites of Natural Gas are made up of weekly cycles over the last decade, but prominently feature a 63 week cycle along with others like a 126 and 188 week cycle which when viewed as a composite, have successfully pinpointed many of the highs and lows over the last decade.
Overall, the risk/reward for shorts looks poor, and I anticipate a low coming up in the next 1-2 weeks. It looks right to position for a bounce, using $UNG, $BOIL or Natural Gas futures (Given the volatility, it’s up to investors to utilize their own risk parameters based on one’s own risk tolerance).