This week has largely given way to a stalling out after the runup in recent weeks. SPX and NASDAQ have largely gone sideways in recent days, and Technology looks to be at/near key resistance where consolidation is likely. Near-term, it’s tough to conclude that Wednesday’s trading creates a top of any sort given that prices remain above prior days lows. The current uptrend from mid-October, and from early November still looks to be pointed higher, and I expect that a possible further period of strength can happen into end of week ahead of any real consolidation. However, as discussed yesterday, I feel that near-term strength should be limited to 4120, with initial resistance at 4081 for SPX. Trends remain bullish, but the risk/reward is growing a bit sub-par in the weeks ahead, and I suspect that the next month will prove to be far choppier than the prior month. Overall, rallies should still be possible into early December, regardless if minor consolidation starts following Friday’s expiration.
Semi stocks likely stall out following strong run-up
Semiconductor stocks (“Semis”) look to face strong resistance at current levels after one of the best run-ups in a short period of time all year. The Semiconductors and Semi Equipment index (GICS Level 3) is now higher by over 31% in the rolling one month period.
This performance is third best out of all 69 S&P Level 3 sub-industry groups and looks to be important and positive given its outperformance vs SPX as well as vs. Technology in the last month.
However, prices look to have pushed up a bit too far too quickly. As shown below, TD Sell Setups are now present on daily $SMH charts (SMH is the Vaneck Semiconductor ETF) Thus, Wednesday’s 4% decline in Semis doesn’t look too unusual given the presence of these signals having materialized coinciding with an exact area of downtrend line resistance from earlier this year. I expect that consolidation is going to be necessary over the next 4-6 weeks given the extent of recent strength.
Bottom line, recent Semi strength likely won’t persist in the short run. While this has proven to be a strong move indeed over the past month, one should await consolidation before chasing this group within Technology.
Semiconductor gains compared to Equal-weighted Technology also shows this area to be important
Charts below highlight The PHLX Semiconductor Index relative to $RYT, or Equal-weighted Technology in ratio form.
The breakout of the black downtrend line below last month certainly allowed for some sharp outperformance into early November. However, when putting this into a larger perspective, we see that the intermediate-term technical structure still requires quite a bit of upside progress before turning back to positive.
Thus, following 31% gains in a month, prices of Semis relative to Equal-weighted Technology remains within a downtrend from early this year. This Sub-industry looks unattractive to chase in the short run after this outperformance, until more evidence of strength and/or some consolidation takes place into December.
United Health (UNH)- Stock rapidly nearing ongoing uptrend
Unfortunately, my addition of United Health to my UPTICKS list was a bit ill-timed, coinciding with a noticeable downturn in many parts of Healthcare in the last week.
Importantly, this pullback has not resulted in any larger technical damage for $UNH.
Trendlines from both June 2022 lows (shown below) as well as last October 2021 have not been violated, and the area at $487.74-$500 should prove to be excellent support on any further weakness.
Given Healthcare’s ability to turn up sharply relative to SPX in recent weeks, I’m expecting that recent weakness in UNH should make this quite attractive to consider technically. Movement back up to $527 is expected initially, then $560.
Once $560 can be exceeded, this will drive a larger rally in the stock, which can’t be forecasted right away given the extent of last week’s decline. However, the key message is that I’m still advocating holding this stock as part of my UPTICKS list and do not feel that abandoning this given lack of structural damage is necessary.
The area of $487.74 at October lows takes on heightened importance as structural support that can’t afford to be broken without changing the technical picture. At present, I feel like this holds, and UNH turns back higher.