Increasing signs of stalling out in US Equities ahead of a potentially very important Jobs report on Friday (8/5), and stock indices largely continue to be fairly resilient amongst a sea of gloom on the economy and earnings. To the bears’ chagrin, this rally has happened amidst widespread participation and a 17%+ rally in Equal-weighted Technology over the last month ($RYT). Moreover, the breadth improvement in the rolling 30 days provides more compelling evidence that June lows should turn out to be much more important than just a trading low. In the short run the combination of short-term cycles, and many important Tech stocks near trendline resistance suggest a possible reversal. Yet, we’ll need to see proof in prices reversing to new two-day lows to have confidence of a turn. At present, 4200-4225 can’t be ruled out, but any strength into/post Non-Farm Payrolls likely should prove to be sellable for traders, and a 3-5% pullback is now looking increasingly likely into mid-August before this rally can continue.
VIX nearing meaningful support
For those looking for opportunities to hedge longs or start to speculate on trend reversals in this uptrend, it’s important to point out that the CBOE Volatility index ($VIX) has now corrected to an area of meaningful support which has held no fewer than two prior occasions on pullbacks in implied volatility.
Given that prices are nearing overbought levels on most US Index charts, one can consider owning implied volatility via VIX calls or futures, expecting that market indices stall out on Friday/Monday and begin to turn lower.
At a price of 21.71, I’m expecting a technical bounce to at least the high $20’s but could reach the low $30’s before peaking again. Realized volatility has dried up in recent weeks on this rally, and implied volatility has trended steadily lower given lack of any meaningful unexpected downside movement despite all the bearish news. Overall, owning “vol” looks appealing here after this VIX pullback, and it’s right to consider it likely that at least a 50% recovery in the VIX of the June/July selloff should materialize into mid August.
OIH downturn likely to challenge and possibly undercut July lows
WTI Crude oil’s selling has now undercut the key $90 level, bringing this down to the lowest levels since pre-Russian invasion. My initial target lies at $86, then $82.50, and given the bearish slope of Crude technicals in August, it remains early to consider buying dips.
$OIH, the VanEck Oil Services ETF, has begun to stall out near meaningful resistance following its bounce from $195 up to $242 in the month of July. Thursday’s about-face has resulted in prices hitting multi-day lows and should accelerate further down to challenge July lows in the weeks to come.
Technically, daily charts show OIH’s rally to have failed exactly where prior lows were made back in May. The concept of “former support should become resistance” is very prevalent here, and this looks to have worked well as prices reversed sharply lower on Thursday, coinciding with Crude’s decline.
Bottom line, near-term weakness likely should test $195, and failure to hold this would result in weakness down to near $180, which lies just above last December 2021 lows. One should avoid buying weakness in OIH until at least 195 and watch for evidence of stabilization at that level.
AAPL and many key Technology stocks arriving at resistance
Probably one of the more compelling reasons to expect a slowing in this rally has to do with the number of key Technology stocks which are now right at important resistance levels after the most recent rally.
Stocks like MSFT, AMZN, META, NFLX, GOOGL and AAPL are all showing similar chart structure and prices have climbed to levels of important resistance.
AAPL is shown below, and its break of the multi-year channel has now given way to a rally back to retest the lows of this channel. Given that momentum is now back at overbought levels per RSI while prices have hit $166 on this rally, I’m expecting this stalls out either Friday or next Monday and reverses lower. This would have important implications for US Technology along with SPX and QQQ, and I expect that markets should reverse over the next 3-5 days based on a Tech stallout.
One can look to buy dips on a 38-50% pullback of the rally up from mid-June, and this should translate into a move down to $152.67 for AAPL at a minimum, with the potential for $148. Following a consolidation, AAPL should continue higher and likely rally back to $178-$180.