The near-term rally in US Equities hasn’t shown much sign of veering off course following a very successful first 10 days of 2023. While this rally is following the pre-election year playbook for Q1, it is quickly nearing the next most important area of resistance which is found at $QQQ $286 into end of week.
DeMark indicators will line up to potentially show TD Sell Setups within the next 2-3 days (9 consecutive days where the daily close is higher than the close from four days ago on both SPX and QQQ).
Given that the VIX is showing a similar potential area of confluence this week while the percentage of SPX issues above their 20-day moving average has gone back above 80, this should bring about a stalling out in US Equities by end of week.
As this daily Symbolik chart shows below, the current daily TD Sell Setup count on $QQQ is registering a 7. Thus, further strength over the next 1-2 trading days could allow these signals to line up in unison. This, in turn, would likely coincide with at least a minor peaking out in this 2023 bounce.
The area at QQQ-285-287 also intersects the meaningful downtrend in QQQ from last August’s peak. Thus, one can make the argument that a stalling out could happen coinciding exactly with DeMark daily exhaustion right as prices are hitting trendline resistance. Overall, the next 3-5 days should bring about a reversal. However, it’s worth holding out until these signals are registered and bring about a confirmed about-face before thinking it’s happening right away.
Financials sector looks to be stalling near prior peaks
Interestingly enough, the early January rally has now reached an area of former peaks, represented by early December highs along with last August, 2022.
The fact that Industrials, Discretionary, Technology, Materials, Communication Services are all showing similar patterns boosts the odds of at least a minor stalling out in US Stocks by end of week.
Financials has shown some interesting sub-sector rotation lately, as Regional Banks have lagged the broader Financial space and underperformed (as might have been expected with rates pulling back). Investment banking has thrived within Financials, as investment broker dealers have outperformed sharply in recent months, along with Insurance names, while commercial banks have underperformed.
As mentioned last week, the credit card companies, $V, and $MA remain technically attractive and should show further relative strength in the weeks/months to come.
Breadth has reached “it’s so good, it’s bad levels
Technically, market breadth has been quite robust lately and the percentage of SPX names above their 20-day moving average has reached over 80%.
While many would think this is encouraging, each occasion that this gauge topped 80% last year resulted in at least a minor market peak back in 2022.
Importantly, the longer-term breadth gauges have made impressive headway, and with >60% of all SPX names above their 200-day moving averages, this gauge is nearing a potential breakout to the highest levels since early 2022.
Overall, I view breadth to be near-term toppy, as part of an intermediate-term bullish condition.
VIX breakdown to lowest levels since early 2022 could bring about buying opportunities by end of week
The Chicago Board Options Exchange Volatility index, or VIX, has just broken December and August 2022 lows. This brings implied volatility down to the lowest levels since early 2022.
For those looking at buying implied volatility, thinking indices rightly have arrived near upside resistance, DeMark indicators seem to suggest there should be a window where VIX could bottom by Thursday/Friday of this week.
An official 9-13-9 pattern could be in place within three trading days given the current 9-13-6 now being shown on Charts. (A TD Buy Setup, followed by a 13-Countdown Exhaustion buy, followed by a subsequent TD Buy Setup)
This very well might allow for a peak in SPX at a time when QQQ and SPY are close to registering their own TD Sell Setups. This also might allow indices to turn down and weaken into late January (when my Cycle Composite shows the next meaningful low in AAPL is due)
The last time a 9-13-9 pattern was seen in VIX occurred back in June 2020, and resulted in a near doubling in implied volatility within a few weeks before “vol” settled again.
Overall, I’m expecting that given that intermediate-term downtrends remain intact for SPX and QQQ and Technology remains in a relative downtrend vs. SPX, witnessing any decline in VIX down under 17.50 should represent an opportune time to buy implied volatility for those with short-term time horizons.
