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Wednesday’s push higher looked positive for thinking Q1 can finish out the quarter on a positive note. S&P and QQQ both rallied to levels not seen since early March. 463 names within SPX rallied on Wednesday out of 500, constituting a “90% Up Day”
Technology outperformed again, while Financials showed a welcome bounce, but 1% gains out of equal-weighted Industrials and Materials were also welcome to see.
QQQ broke out to the highest daily close since last August, though needs to exceed 315.25 to officially surpass intra-day peaks. Movement over 315.25 likely leads to 326 into April.
Base metals have picked up steam and both Aluminum and Nickel have risen to new multi-week highs, which bodes well for these to join precious metals in continuing higher. Copper, meanwhile, is very close to its own breakout.
Overall, Wednesday’s rally looked quite constructive from both a price action, participation/breadth standpoint. The minor concern is the ongoing ramp-up in Defensive sectors. However, Tech and Financials rallying together has been rare of late. It seems like a more bullish force for why stock indices can continue to grind higher in the short run.
Upside targets for SPX into early April lie initially near 4043-7 followed by 4075-9, with an outside shot of 4107 before consolidation in Technology happens. Movement back under 3950 would be a decidedly negative development structurally, making this an important area of necessary support.
Natural Gas close to bottoming- Longs attractive for a 2-3 month hold
Natural Gas (NG) is sounding the alarm again that lows and a reversal of trend are likely in the upcoming week. Rallies look likely into late May/June.
Oversold conditions coupled with seasonal positives, cyclically bullish trajectories and DeMark related “13 Countdown” exhaustion buys are all coming together to suggest lows are growing near.
Traditional technicals have not yet weighed in yet that NG has bottomed, as downtrends have not yet been exceeded. However, positive momentum divergence has been in place for the last month, and a breakout could happen into next week.
At present, downtrends remain in place for May Natural Gas until $2.30 is exceeded (April final trading day was today 3/29) Given the roll schedule, anyone who owns Natural Gas related ETF’s needs to be wary of the transitioning into the next month given the steep contango. ($UNG might make more sense as an ETF to consider vs. $BOIL until trends/momentum have strengthened, and the roll to May is complete on these various ETF’s. (Leveraged ETF’s are particularly difficult to consider for commodities given the roll when attempting to pick a low, and are generally not recommended).
Natural Gas cycles turn up sharply in April
Looking back over the last two decades, a combination of various cycles suggests that lows should be imminent. The 63-week cycle stands out as being quite strong for NG. When searching for other cycles to add to a composite, I honed in on the 125 and 187 week cycles, which both have harmonic relationship to the 63-week period.
Combining these cycles of various lengths, one can see that the runup into early 2003, into late October 2005, as well as Summer 2008 occurred on schedule. This composite also correctly captured the rally into last Fall for NG before bottoming in late March 2023.
Assuming the phasing doesn’t change materially for these weekly Natural Gas cycles, one should expect a rally into mid-June before a peak which might result in weakness into late July before another rally.
Seasonally speaking, the trends over the last 10 years have been more positive for April than any other month except March. Both March and April Natural gas have rallied in seven of the last 10 years, more than any other time of the year.
Given that March is set to finish down -27.92%, the second worst return of any month outside of January 2023, causing the quarter to register the worst performance ever for Natural Gas, this has the makings of a sentiment driven bottom, which aligns with traditional technical oversold conditions.
Technology breakout
Wednesday’s gap higher in Technology helped the Invesco Equal-weighted Technology ETF ($RYT) finish at the highest level since early February.
This is a decidedly bullish development for Technology that should result in rally up to challenge the highs from early March.
While $268.54 is possible in RYT, the important area lies above at $271 initially in the days ahead. Only in the event of 260 being broken would Technology likely give way to further weakness.
Stocks like $INTC made meaningful consolidation breakouts after having traded sideways since last September. Other former laggards within the Semiconductor space like MU, LRCX, ON are also higher by 4% or greater.
Whether or not this represents the start of some mean reversion to the laggards within the Semiconductor space is not clear. However, seeing stocks like $INTC finally break out after consolidating near the lows for nearly a year following a 65% decline is definitely considered a technical positive in the short run. Near-term upside targets for INTC lie near $34-34.50.
DeMark indicators on relative charts of $QQQ to $SPY remain early to produce exhaustion and for those looking to sell into and/or attempt to short large-Cap Technology, this looks clearly early. I’ll discuss this in more detail in the days ahead. At present, being overweight Technology still looks like the right call, and fading this remains premature to consider. The chart of RYT below should have an excellent chance of testing March peaks in the days to come.
