Thursday’s breakout in US stock indices served to give more proof about the intermediate-term trends turning more bullish while growing ever closer to short-term resistance targets, which might be reached by Friday.
US Treasury yields along with the US Dollar fell sharply on the day, bolstering the argument for this rally in risk assets to continue.
Near-term, technical targets in price and time likely could be reached by this Friday. However, given the constructive technical price action, dips are thought to be buyable and should prove short-lived ahead of additional upside follow-through.
Semi-conductors and Transports both gave some early proof of being resilient mid-day ahead of Powell’s speech even with Tech hardware and Software lagging early on. This was thought to be a sign of strength, and a true positive to see great resilience in these leading sectors.
By end of day, all major GICS Level 1 S&P Sectors outside of Energy had turned positive while implied volatility fell sharply. The VIX finished the session at the lowest levels in more than a year, and looks headed toward the mid-Teens.
Overall, I expect a bit more upside follow-through for Thursday into Friday before a probable consolidation into next week. While Wednesday’s surge certainly appeared positive, momentum is nearing overbought levels on several timeframes, coinciding with near-completion of several DeMark related exhaustion signals.
Techincally, it remains right to be long into earnings for $AAPL, $AMZN, and $GOOGL, but short-term traders might seek to trim some long exposure into strength on late Thursday into Friday. Investors with longer time frames, however, should not seek to abandon longs, as the rolling over in Treasury yields likely has further to go in February which should help recent asset gains continue.
As two-hour charts from Bloomberg show below, prices stretched up to hit the 100% projection target of the first rally up from mid-December. SPX now lies near potential near-term resistance. However, pullbacks likely will be buyable down near 4077-4100, and the first warning sign would come on a move under SPX-4015 which isn’t immediately expected.
Technology, to its credit, has now confirmed a larger breakout in relative terms to SPX when eyeing Equal-weighted Technology vs. Equal-weighted SPX. This should prove to be a tailwind for Equities this month.
Cycle-wise, many note that the 10-year, 20 year and 60-year patterns all seem to focus on February 17-19th for a temporary peak, followed by some consolidation.
Thus, any pullback from late this week, starting on Thursday or Friday this week should prove temporary, and until prices can prove that this move is false, which hasn’t happened despite the large roar from earnings bears, prices still look to be able to push higher.
META spikes higher after hours following earnings
META’s shares soared roughly 28% post market close ($181.96 after market vs, $153.12 close (2/1/23, 5:30 pm EST) but now seems to be nearing its first meaningful area of weekly Ichimoku Cloud resistance (See below)
Despite the very sharp rally off the lows from last October, a meaningful further rally in $META likely will take some time given its distance from all-time highs.
Overall, short-term rallies that cause momentum to reach overbought levels on daily charts (and nearly weekly, per RSI) are typically not ones to chase given the ongoing negative slope of monthly RSI.
At present, the breakout on 11/30/22 did successfully exceed nearly a one-year downtrend line for META on above-average volume. This turned the short-term trend bullish. Now, intermediate-term momentum is certainly improving, but short-term gains looking to be nearing initial price targets in overbought territory.
Upon consolidation and some better evidence of intermediate-term stabilization which might cause monthly momentum to improve, it would become easier to adopt an intermediate-term bullish stance. Bottom line, I expect META to be higher by year-end than current levels. However, stocks like these typically necessitate a gradual process of basing, rather than expecting a rally from low to high right away.
Short-term targets have been reached in META per momentum and Ichimoku cloud resistance but it’s tough to rule out $185-$190. Intermediate-term targets above $190 lie at $236 and should be reachable at some point in 2023.
Apple’s recent breakout from last Fall’s highs should allow for $156
Technically, AAPL is a better stock than META from an intermediate-term technical perspective. Following its big rally from early January 2023, AAPL lies only about 20% from its all-time highs.
This is far better than stocks like META, or GOOGL, making this a better long candidate technically given its intermediate-term technical strength, relatively speaking.
Rallies look likely in AAPL up to $150, then $156, but then likely require some consolidation in the back-half of February before additional gains can occur.
Technically, daily charts of AAPL improved upon the success initially in regaining former lows from last Summer. Additionally, the breakout of AAPL’s downtrend from last August proved to the next positive step.
Momentum remains positively sloped on a daily and weekly basis, but similar to META, remains negative on a monthly basis.
Overall, I like owning AAPL as a long within Technology and feel that it’s superior to META, or GOOGL. Pullbacks down to $135-$140 should represent buying opportunities on weakness.
GOOGL’s recent recovery is a short-term positive; However, similar to META, complete recovery will take time
Alphabet also looks due for earnings on Thursday, 2/1/23, which should help this stock rally up to its first real resistance target near $104 up to $109
It’s downtrend has been successfully broken in recent days, which is a bullish short-term development. However, similar to META, this remains well off its all-time highs, and this first rally is likely the building block for intermediate-term gains.
Near-term, however, this first rally could experience some stalling out near $104 with a possibility of rallies to $109, its first 38.2% Fibonacci retracement zoone of the prior downtrend from last year.
Any pullback in the latter part of February, however, should be buyable in the mid-90’s for additional strength up to $117, which looks to be a very strong overhead target.
Bottom line, GOOGL is likely a better risk/reward than META after it’s pop to $181 after hours (assuming that holds for Thursday) as prices just recently made their breakout.
However, it’s AAPL that stands out as having the best intermediate-term technicals of the three. Thus, while META and GOOGL might seem better risk/rewards and have the potential for short-term gains, it’s the intermediate-term strength which garners the most appeal for long-term portfolio managers from a purely technical perspective.