The near-term rally continues to press higher, but likely will find some short-term resistance Friday and/or Monday where a minor consolidation gets underway. Short-term evidence of upside exhaustion is now present on $SPX, $SPY, $QQQ charts based on DeMark indicators along with minor cyclical peaks which signal a short-term change of trend Friday. (Stock prices of $AAPL, $AMZN and $GOOGL were lower in post market trading Thursday, though its difficult to make much of trading ahead of the news conferences and in after market trading only).
However, given the strong breakouts seen in Dow Jones Transports and Semiconductors lately, along with outsized gains in Equal-weighted US Equity benchmarks and ETF’s this past week, it looks likely that pullbacks should prove temporary and equate to buying opportunities.
As discussed early in the week, given the degree of erosion in the US Dollar and $TNX this past week, pullbacks are likely to prove short-lived. All 11 Equal-weighted Sector ETF’s are officially above their respective 200-day moving averages (m.a.). Moreover, this translates into more than 70% of all SPX names being above their 200-day m.a.
Sentiment continues to be a driver of “why” markets can rally in the absence of strongly bullish earnings. Indeed, this has proven to be one of the more interesting periods in recent years, where markets have successfully avoided weakness in what many believed would be a dismal first half of the year.
While some short-term sentiment gauges by Fear and Greed index, or Investors Intelligence have turned bullish, these are near-term readings only and don’t line up with how negative the longer-term sentiment polls seem to be, from BofA’s Portfolio managers report to the CFTC readings.
As discussed in last month’s Technical 2023 Outlook webinar, pre-election year seasonality suggested this 1st quarter has historically been the most bullish of any of the 16 quarters that represent the presidential cycle. My cycle composites agree with this bullish seasonality, and several of the models I employ all show a bullish 1st quarter and bullish 2023.
Breadth and momentum have been quite strong, and technology has managed to catch-up in a big way to some of the strength being seen in sectors like Discretionary and Communication Services (though these sectors are still leading Tech on a YTD basis.
SPY, as shown below, now shows completed TD Combo “13 countdown” exhaustion signals after this breakout, and it’s thought that a stalling out is possible into next week. However, I expect that this proves temporary and buyable. SPY should not get under 400 in this view.
Overall, trends remain bullish but a bit overdone, but consolidation should translate into attractive risk/reward opportunities.
Given 1962’s close fit, let’s turn our attention to 1963
Last year I discussed how markets largely trended like 1962, or the mid-term cycle from 60 years ago, when Spring weakness lasted into June before a bounce, double dip into October, then rally into year-end.
60 years is one of the necessary years to study when entering into any new year, and is a key part of one of my cycle composites.
Now it’s proper to turn our attention to 1963. As the weekly chart of the decade of the 1960’’s shows below, prices largely trended higher into 1965 with peaks near early 1966 which led lower into 1969.
I’m expecting that 1963 could possibly also be a year to watch for guidance as to 2023. Dow Jones Industrials price charts from 1956 to 1967 show that the early pullback into 1962 bottomed before lifting straight higher. Thus far, 1963 has been a perfect analogy.
If this proves true for this year, then February could be a minor negative month performance-wise before additional strength. However, thus far, 2023 has shown no real signs of peaking out. We’ll have to monitor this further in the weeks ahead.
Treasury Yields still show evidence of trending lower
One of the most consistent relationships investors saw in 2022 was the negative correlation between yields and SPX. The peak in yields back in October directly but inversely correlated with SPX as equity prices bottomed on cue four months ago.
Since that time, yields bottomed in late November/early December which coincided with SPX peaking. Then yields ran up into late December and peaked right as SPX bottomed.
The recent breakdown to new multi-day lows is seen as being bearish for Treasury yields, and should lead yields lower into March, which would line up with when Treasury yields could bottom based on weekly cycle composites.
Key levels for $TNX lie at 3.32%, and below that lies very little support for yields until near 3.11%, or a 38.2% Fibonacci retracement of the yield rally from August 2021.
However, the 3.00% level stands out as being quite significant from a psychological perspective. Declines down to 3.00% would likely translate into a chance to sell into Treasuries again, expecting yields might experience a meaningful bounce in the months ahead.
At present, technical trends which had begun to stabilize a bit, have turned more bearish this week on the early week breakdown in yields. This likely leads to a test and break of 3.32%.
Technology breakout vs market relatively faces an important test with Thursday’s post-market earnings
Technology accomplished its much-needed relative breakout vs. the market this week, and as $RYT vs $RSP charts show below (Invesco’s Equal-weighted Technology vs Equal-weighted SPX), relative charts have just broken out above the entire downtrend from early last year.
This is an encouraging intermediate-term development, and unless Technology declines sharply enough to erase this constructive breakout for the group on Friday, bodes well for further near-term strength.
Note below that the larger multi-year uptrend for Technology (shown in red) was violated last January. This resulted in immediate and sharp downdraft in this group which caused the Stock market to show more convincing evidence of turning lower. Prior to January 2022 between May into December 2021, the broader market began eroding steadily, yet Technology provided the necessary camouflage to keep broader indices higher until near end of year.
2023 of course, has shown the opposite of 2021 thus far. The broader market has been quite strong since late-2022. Now technology has come to the rescue and has been strengthening sufficiently to make this the third-best performing sector on the year.
Overall, while the near-term rally in Tech has made some of the former bottom feeders stretched, pullbacks should offer some good opportunity to buy dips given this progress.
Amazon ($AMZN- $112.91)—great rally but near-term resistance looms
AMZN’s rally over the last five weeks has been nothing short of astounding. Shares lifted 40% in five weeks to levels right under long-term downtrends from its November 2021 peak.
Weekly charts of AMZN below illustrate why it’s proper to put the recent bounce into perspective by focusing on the entire trend from when AMZN peaked out 14 months ago.
Shares declined nearly an exact 50% absolute retracement from all-time highs, and similar to stocks like AAPL and META, showed downside exhaustion before rocketing higher.
AMZN’s counter-trend weekly TD Sequential “13 Countdown” Buy signal occurred last month in January, however, not at October or June 2022 lows.
Overall, the degree of strength off last month’s lows is encouraging, as it’s managed to turn weekly momentum back to positive territory, per MACD.
However, I suspect that the area from $112-$120 will be a serious short-term area of resistance that should hold initially on this rally. (Post market close, $AMZN is trading down to $108.75 as of 4:30 pm EST, from its 2/2/23 close of $112.91)
Daily RSI has officially reached overbought levels, with the price spike above $112 on Wednesday 2/1/23. However, volume spiked very sharply on Wednesday’s rise, making pullbacks in AMZN likely buyable from $100-$106.25 on short-term pullbacks.
The area at $106.24 marks the intra-day high from Wednesday 2/1, making this an initial area which seems attractive to buy dips.
Upon exceeding this larger downtrend at $120, it’s thought that a move up to $145 should get underway. Only upon breaks of $91.50 would rallies be postponed. At present, this seems premature.