Two Steps Forward, One Step Back
Key Takeaways
- Wednesday’s close leaves prices right near key 1/10/22 intra-day lows and could still act as near-term resistance heading into the next few days
- Post Market downside volatility in FB, SNAP, PYPL -2.25% , SPOT, QCOM 0.79% might temporarily derail rally; However, consolidation isn’t thought to threaten Technology’s bullish trend
- Bitcoin nearing its first major area of trendline resistance from Nov. 2021 highs
S&P’s upward progress now has reached its first meaningful level of upside resistance which might cause a temporary slowdown to this rally. While SPX cash index looks to have barely eclipsed the important 4582 on a close, the NASDAQ and Russell 3000 have not yet risen above 1/10/22 intra-day lows. Given the after-hours volatility, it’s not illogical to expect some consolidation after the recent sharp rise US Equities have experienced over the last four trading sessions. SPX has quickly gained 260+ points in just four trading days, and hourly RSI gauges reached the highest overbought readings of 2022. Meanwhile, weekly momentum remains negative. In my experience, the combination of these often can present a difficult near-term trajectory and might result in a “2 Steps Forward, One Step Back” type pattern. Overall, dips are not expected to reach late January lows and should represent buying opportunities.
Meta Platforms (FB) decline could negatively impact “FAANG” this week
FB’s after hours 21% decline (Based on a 6:30pm EST pullback of 75 points from its $323 close from 2/2) looks set to undercut its 50% retracement levels of the low to high range from March 2020 into Thursday 2/3/22’s opening print. Bottom line, holding $260 will be important for this stock by end of week. Its technical pattern has proven choppy following the break of the 18-month uptrend from the March 2020 lows. Near-term technical trends are negative, while weekly momentum(Per the Relative Strength index (RSI)) is not yet oversold
Under $260 likely would point to a zone of support at $219-232 as being an attractive area of support for those looking to buy dips. This lies near former 2018- early 2020 peaks, and lies right near FB’s 61.8% Fibonacci support. To have confidence of this stabilizing, a rebound back over $289 will be necessary. At present, holding 260 by end of week is the first step.
My “FAANG” composite (NY FANG index with MSFT 0.57% added) remains under pressure – The following Technical points seem relevant:
While GOOGL -0.91% was helpful in causing a nice bounce in the FAANG composite in recent days, it hasn’t risen sufficiently to recoup the damage caused by a break of eight-month trendline support
“FAANG” remains near-term weak technically. The after-hours 21% decline in FB, (Post close 2/2/22) if not recouped early in Thursday’s trading, is likely to cause more near-term pressure
Technology as a sector seems to have held where it needs to on an intermediate-term basis in its relative uptrend from 2016 vs the S&P to keep the larger trend in Tech intact.
Overall, it will be necessary for my “FAANG” composite to recoup this Yellow trendline shown below to have confidence of strong outperformance. Until this happens, the group is simply undergoing consolidation, and this doesn’t seem complete.
Finally, with regards to Cryptocurrencies, Bitcoin (BTCUSD) has now risen up to the first meaningful level of trendline resistance since it bottomed along with US stocks in late January. This area of importance lies near $39,551-40k. Until 40k is exceeded on a daily close, it remains in a downward sloping pattern, and it’s tough to rule out further weakness technically speaking.
My Cycle composite shows a good likelihood of a Spring 2022 low for BTCUSD. Bottom line, this minor two-week bounce might still be premature in expecting a new intermediate-term rally has begun. Two key areas of importance, on the upside and downside. First, to be bullish, getting above 40k is important. On the downside, any decline under 35,511 sets up for a test of 32,950 which was an intra-day low back on 1/24/22. Breaks of this level cannot be ruled out but would lead down to last Summer’s lows before more meaningful stabilization.
