The S&P 500 index extended its Q4 uptrend last week, following a short pullback and rally from first support at its 15-day moving average. After a 10% rally from the October lows a near-term pullback should not be a surprise. However, many clients are asking where trading support is and how deep a pullback could develop.

First trading support is between the 15-day moving average (3108), which serves as reasonable proxy for the S&P’s short-term trend, and the recent lows at 3090. Below those levels, which is a 1.5-2% decline, the next support can be found near the summer 2019 highs at 3025. This conveniently lines up with the widely followed rising 50-day moving average for an overall pullback of 4%.

Should some future near-term event trigger a correction, my expectation is that it will likely be contained in a -2 to -4% band. I view pullbacks as an opportunity to increase equity exposure to both growth and cyclical stocks given the weekly momentum indicators, tracking the more important 1-2 quarter shifts, suggest further upside into mid-late Q120.

One characteristic of a bull market is that leadership is often passed from one group to another, similar to a baton-relay race. One group accelerates, becomes overbought and pauses, and leadership passes to another group that begins to accelerate after having paused for many weeks. The Chinese internet stocks, Netease (NTES), Alibaba (BABA) and Tencent Holdings (TCEHY), highlighted in this space on Nov. 11, are good examples of ongoing rotation.

After a Pause through 2019, Amazon Stock Begins New Up Leg

This week’s focus chart is Amazon (AMZN), which shows very similar technical traits to those taking root in other growth stocks that accelerated recently. Weekly momentum (top panel), tracking 1-2 quarter shifts, is turning up from oversold levels as price bottoms at key price support between 1566-1685. First resistance is close by at the Q3 highs (1853) followed by the Q2 highs at 2035. Relative performance versus the S&P 500 (bottom panel) has been weak over the past 3-4 months as AMZN’s price corrected but is now showing early evidence of reversing to the upside. Use near-term weakness to accumulate.

Noteworthy

Sector leadership remains mostly unchanged with technology’s relative uptrend intact while energy and materials continue to trend in the opposite direction probing new lows. Note the consumer discretionary sector is beginning to bottom, after lagging through most of 2H 2019 driven by an upturn in AMZN. The long-term relative performance trend for defensive sectors, such as staples and utilities, remain negative but are becoming oversold short-term. In contrast, financials and industrials are likely near a short-term pause following their October-November rebounds.

After a Pause through 2019, Amazon Stock Begins New Up Leg
After a Pause through 2019, Amazon Stock Begins New Up Leg
Disclosures (show)

Stay up to date with the latest articles and business updates. Subscribe to our newsletter

Articles Read 1/2

🎁 Unlock 1 extra article by joining our Community!

Stay up to date with the latest articles. You’ll even get special recommendations weekly.

Already have an account? Sign In

Want to receive Regular Market Updates to your Inbox?

I am your default error :)