The 2022 bear market looks to be on thin ice – The SPX’s second straight day higher has successfully broken out above January 2023 highs. This is a positive development which not only has surpassed minor downtrends from last Fall, but also is serving to exceed the entire downtrend from last January. This is also occurring in the NASDAQ Composite and more recently was seen in the Russell 2k index in recent weeks.
While this doesn’t preclude some backing and filling if Tech earnings start to come in sub-par, it does look like an important structural positive which likely turns the trend higher between early February and mid-March.
This directly goes against the popular narrative that the economy and also markets might be weak during the 1st Half 2023 before strengthening in the 2nd. This consensus view is getting easier and easier to challenge as Technicals continue to improve. Overall with a cyclical bottom having been projected near Wednesday-Friday of this week, this could still very well play out. However, an immediate move lower would be thought to be a buying opportunity, affording dip-minded investors a better suited risk-reward area to consider risk assets at a time when sentiment remains very much offsides.
As seen below on weekly charts, SPX has not yet broken above its Ichimoku Cloud on a weekly basis. Doing so, whether it be right away, or in early February, points to a direct challenge and break above 4100 on its way to 4300-4325.
Pullbacks truly need to violate 3800 to have much concern given recent technical improvement. Moreover, any minor pullback to 3900 likely presents an attractive opportunity to add to longs.
Sentiment wise, there has been a steady uptick of Bulls lately, with AAII showing the most optimistic reading in weeks, while CNN’s Fear and Greed Index also has ratcheted higher along with Investors intelligence. However, BofA intermediate-term sentiment positioning still shows investors very much on the sidelines, with some of the lowest exposure to US Equities as has been seen in over 20 years. Thus, while short-term sentiment gauges might be a bit more positive on recent rallies, the longer-term picture still suggests this could be an attractive time for the Buy-and-hold crowd after historic de-risking.
See S&P below. 4100 remains key at this point now that 4015 has been exceeded in SPX cash and 4035 in S&P front month futures.
NASDAQ Composite joining SPX in achieving a lengthy trend breakout based on Monday’s trading
It’s always difficult to make decisions based on one-day’s trading. Most fundamentally oriented folk see gains as chances to take profits while many Technicians might feel this makes the stock or index more attractive.
However, in cases like this where lengthy downtrend lines are indeed exceeded for the first time in over one year, this could present an appealing opportunity to consider that the ongoing downtrend might be changing to an uptrend.
At the very least, one should consider using dips as attractive opportunities as technical continue to show improvement.
It’s thought that August 2022 peaks near $13,000 should materialize into a realistic upside target for NASDAQ.
Overall, similar to the SPX, this move in the NASDAQ is also considered to be quite positive.
SOX breakout helping to fuel Technology’s comeback
Don’t look now, but Semiconductor issues have begun to show meaningful outperformance and technical improvement within Technology. Charts of Philadelphia’s Semiconductor index or $SOX, show Mondays’ close to have just exceeded downtrends going back since last Spring.
This is thought to be a bullish development and patterns like these are correctly labeled as Reverse Head and Shoulders patterns which have just seen neckline resistance exceeded.
While near-term resistance very well could materialize near December 2022 highs, any pullback should create an attractive time to buy dips. Overall, Semiconductors have slowly but surely improved in technical strength, and Monday’s progress should not be ignored as it likely brings about further strength in Technology between now and mid-March.
Technology ETF also breaking out of multi-month trendline resistance
Interestingly enough, charts of Invesco’s Equal-weighted Technology ETF ($RYT) have just made the same breakout as seen in SOX based on Monday’s close.
This looks to be an important development which has occurred at a time when Tech had been lagging badly. Quite a few other sectors are up meaningfully on a 1 and 3-month basis, but Technology now seems to be roaring back.
It’s also interesting that Treasury yields have been rallying in recent days, and Tech has shown even stronger outperformance.
S&P SPDR ETF’s that cover Technology, like $XLK, are now outperforming all other major Sector SPDR ETF’s over the past week.
This goes a long way towards bolstering Technology’s technical strength. Furthermore, breakouts in absolute and relative terms will serve to make Technology a favored group for 2023 after this recent outperformance.