Thursday’s breakout in SPX and NASDAQ look technically significant, and suggest that the lows for this March decline likely were made this past Monday.
Volume proved heavy with advance/Decline data showing roughly 3/1 bullish breadth and volume flowing into advancing vs Declining issues at a bit heavier rate.
Technology extended gains along with Financials, as the major banks finalized a rescue package. Technology’s resilience has caused the sector to extend gains above areas thought likely to stall out ,while AAPL successfully finished at the highest daily close of 2023.
Thus, the last month’s rolling over of Financials, Energy, Materials and Industrials has been largely saved by Technology, which has roared back and appears likely to help markets bounce at a time when recent laggard sectors have begun to stabilize.
As S&P 500 index daily chart shows below, the act of reclaiming 3928 on a Daily close helps to improve the near-term structure technically speaking. Thursday’s rally has surpassed early week highs to officially recoup the area which was violated.
This likely kicks off a rally back over 4025 in the next couple weeks. However, this area adjoins a larger downtrend line from early February peaks. This will need to be eclipsed to have confidence of a larger low being in place.
QQQ has also broken out, and now faces resistance at 310
Given the extraordinary rally in many important names like $AMD, $INTC, $ADBE, $LRCX, $NVDA, and $KLAC, all of which jumped more than 5% in trading Thursday, and a +1.87% gain in AAPL to the highest close of the year, it’s no surprise that the $QQQ broke out above 300 an made a very noticeable surge higher.
This run-up in Technology looks set to help the NASDAQ record its best performing week of 2023. Additionally, it looks increasingly likely that Technology might very well continue up without any meaningful consolidation in the near-term. My counter-trend exhaustion tools had shown a possible stalling out given DeMark TD Sell Setups on $RYT vs $RSP earlier in the week. However, Thursday’s runup has failed to adhere to plan, and now is showing a new count higher.
As always, when in doubt, it’s important to consider momentum and trends, equally if not more than the potential for a counter-trend move in a very strong group. Given $AAPL’s breakout, this makes a further Tech advance likely in the days ahead. Notice also that former laggards like Intel $INTC have advanced over 20% in the month of March. That’s interesting and largely seems to have been overlooked by much of the investing public.
2023 increasingly has begun to look like the back half of 2021. Each period featured broader market deterioration across sectors outside of Technology. As many remember, despite many sectors having struggled to keep up with SPX, it was the leadership of the large-Cap Technology stocks that helped the SPX persevere and run up into early January 2022 while the broader market had peaked out back in November 2021.
Such a dispersion in sector leadership doesn’t have to be bearish for Stocks indices this time around. However, the next stage of the rally will demand strong participation out of many of the groups which have faltered lately, with Financials being most important given their size within SPX. Bottom line, $QQQ faces a most important area directly above. Exceeding 310 would most likely catch many money managers and retail investors off-guard.
Apple breakout to highest close of 2023 is constructive
Don’t look now, but $AAPL has just made its highest close for 2023, finishing at the highest levels since last Fall.
The short-term pattern resembles a bullish reverse Head and Shoulders pattern, and looks to be breaking out given Thursday’s ability to close back over 2/15’s high close of $155.33.
Given the above-average volume seen on positive days over the last few weeks, Thursday’s breakout could very well lead to an advance up to challenge last Fall’s highs at $175, and would go against much of the current bearish sentiment.
Overall, markets remain in an important time between now and next week’s FOMC meeting. However, Thursday’s gains seem to be a “market tell” that favors the Bulls with Technology and more specifically, Semiconductors able to extend without much if any consolidation.
Daily MACD for $AAPL shows a bullish crossover above the signal line. Furthermore, momentum is not overbought on daily charts given the consolidation which has played out since late January.
Sentiment has turned sharply bearish right as cycles indicate a possible low at hand
It’s important to see how different sentiment is now vs. back in early February when record numbers of DTE-0 options were trading, and sentiment polls had just turned positive for the first time in months.
CNN’s Fear and Greed index gives an insightful look at sentiment using a variety of different metrics. Those who might be quick to dismiss this gauge might see that prior peaks in sentiment back in August 2022, November 2022 along with early February 2023 were all important in producing market peaks.
Conversely, last June 2022 lows along with October followed by late December 2022 all had bearish sentiment that coincided exactly with market lows.
The decline in Fear and Greed index over the last four weeks has shifted sentiment sufficiently lower to the lowest area since last October, with readings under 25 on a scale of 100.
This reading interpreted as “Extreme Fear” should likely usher in a rally in the stock market at a time when pre-election year seasonality suggests the back half of March might be much stronger than momentum and breadth might ordinarily suggest is possible.
Additional sentiment polls like AAII also show a near 30 percentage point spread between Bears to Bulls. The Bearish reading of 48.4 represents a four-month high, while bullish readings of 19.2% represent a six-month low. (Data taken from 3/15/23).
Bottom line, Thursday’s (3/16) rally goes a long ways towards suggesting that this week produced a trading low on Monday, and Technology’s resilience and upward thrust should produce some upside follow-through in the weeks to come.
Initial upside for SPX lies near 4050 while for $QQQ that lies at 310.
The ability to get above 310 is thought to be more important, as $QQQ could very easily carry US Equity markets higher given Technology’s percentage within SPX (27.8%, the highest percentage constituent of any of the 11 major sectors).