Unfortunately, Friday’s breakdown can’t be considered anything but negative, and this damage needs to be recouped right away on Monday to prevent a retest of March lows. Technology, in particular, has pulled back to a “Make-or-Break” level when eyeing QQQ along with SOX, and failure to hold recent lows next week will postpone the idea of a rally until mid-April. An imminent reversal next Monday, the final trading day of the month and quarter, is still possible, of course, and would prevent a larger breakdown. However, given the large high-to-low range in Friday’s session, it seems like either a positive catalyst over the weekend or more extreme evidence of capitulation on Monday would be necessary before claiming that March lows will hold.
Overall, it goes without saying that March lows now take on huge importance for this selloff heading into next week. Unfortunately, Friday’s damage was not something I had forecast heading into the end of the month and quarter. However, it’s important to simply concentrate on what’s changed in the last 24 hours, and I’ll attempt to do this below.
As can be seen below, SPY has little wiggle room before testing the lows from mid-March. Structurally one can still make the case that trends can hold and turn higher until/unless March lows are broken. Unfortunately this will take a toll on momentum, and MACD might cross over back to bearish if prices cannot hold on Monday.
Some bright spots to report concerned the degree of downside volume for Friday, which were far above levels seen back in mid-March. Thus, while high Put/call ratios and VIX inversion happened a few weeks ago, there was never any evidence of volume-based capitulation.
TRIN readings finished at 1.66 for Friday, which remains below levels that have proven important at bottoms which can normally eclipse 2.0. However, on further selling on Monday, that would bring the so-called “Arms index” very close to capitulatory levels.
For SPX, 5500 is important to hold heading into Monday. While DeMark exhaustion signals were present on 240 minute and 120 minute charts, they seem a few hours away on 60-minute charts and are premature to form on charts of a daily timeframe.
The ability to hold up above March lows and reverse sharply back higher on Monday would be helpful to the view of a “double bottom” and possible recovery. However, if this does not hold, it suggests another 100-125 points lower for SPX. Stocks like AAPL fell back below $219 on Friday, and NVDA lies right above its own important support near $107.50.
SPDR S&P 500 ETF Trust
SOXX looks to be at a very crucial level in time and price
The Semiconductor Ishares ETF SOXX 0.05% fell to technically break its former lows from last Summer and last Spring on Friday. That’s not encouraging from a structural perspective.
However, the entire uptrend line from 2022 hit just above current levels on Friday. While Friday’s decline proved to be a breakdown of this level, it’s proper to normally await consecutive closes before paying much attention to this, as a month and a quarter-end reversal could wreak havoc with attempting to label a trendline as being broken right before it’s recouped.
The one positive is that TD Buy Setups were registered this week on this week’s decline. Thus, a possible reversal very well could begin next week just as the price has pulled back to test late 2021 former highs (now possible support).
The larger conclusion is that this area remains important, with multiple trends intersecting at current levels. This looks like a crossroads for the sub-sector and shouldn’t prove to be an easy area to be violated without a struggle when sentiment has gotten so bearish.
Semiconductor Ishares ETF – SOXX
Short-term evidence of Energy breaking out vs. Technology
Given that Energy could turn out to be the sole sector with positive returns for March, this sector has pushed up to break out of a multi-year downtrend vs. Technology.
Note, this doesn’t appear like a long-term breakout that will have lots of staying power given the technical prognosis of WTI Crude oil.
However, charts of Equal-weighted Energy (RYE) vs. Equal-weighted Technology (RYT) have broken a weekly downtrend stretching more than 2 years in duration.
In the short run, Energy looks like a better bet for early April given the deterioration in Technology. However, this arguably should not last longer than 2-3 weeks potentially before Energy begins to reverse course vs. Technology.
RSPG / RSP
Charts of XLE offer a temporary neutral intermediate-term pattern, which could offer stabilization given Tech’s rapid decline
AS shown below, XLE has largely made no progress in roughly three years’ time. Stocks like XOM and CVX normally serve as helpful weights within XLE which can offer better relative strength during times of volatility in stock indices.
Thus, outside of the Precious metals, Treasuries, Emerging market, or international ETFs, which have been performing well in recent months, defensive sectors, including Energy, are areas to consider until the US stock market can begin to stabilize.
Overall, XLE looks more attractive than either XOP, or OIH and could be more appealing than Technology until some stabilization can occur.
Overall, trends in XLE have been neutral for years, and until/unless $84 is violated, it’s likely to still be a neutral pattern, which might offer less volatility than Technology.
S&P 500 Energy Sector SPDR – XLE
