Key Takeaways
- Thursday’s reversal looked important and negative, and likely means a pullback down to test February lows has begun. Under SPX-4375 would give more conviction to the Bears.
- QQQ’s break to new weekly lows has caused ratios of QQQ/SPY to finish at the lowest weekly closing levels in nearly two years, while DeMark exhaustion looks premature.
- “FAANG” looks to be slowly weakening; However, AAPL remains a relative bright spot.
Thursday’s reversal looked important and negative for US benchmark indices, and likely means that weakness down to challenge February lows is underway. QQQ finished below last week’s lows, while S&P made a bearish engulfing pattern that suggests 4500-4525 was indeed an important resistance zone. Overall, SPX-4375 is a key area on the downside, and violations of that should have little to no support until near March lows initially. This lies at 4157.87. Bottom line, a defensive stance remains prudent, favoring Utilities, REITS, Staples and Healthcare while holding off on buying dips in Technology right away.
NY FANG+ index (Bloomberg) now set to challenge mid-March lows, and should undercut briefly
Bloomberg’s NY FANG+ index as a proxy for “FAANG”, has dropped to the lowest levels in nearly a month, and set to challenge mid-March lows in the days ahead. On an absolute basis, we began to see signs in recent days of NFLX 1.11% ’s drop affecting this group. Now, FB, GOOGL 0.87% and AMZN 3.74% are all making short-term declines as part of larger uptrends. Near-term, I’m expecting “FAANG” likely underperforms until May and pulls back to new monthly lows. Thus, until Treasury yields start to exhibit evidence of rolling over, it’s likely this group should underperform a bit longer before bottoming in the next 1-2 months.
Apple continues to hold up much better, and no deterioration in AAPL’s weekly charts
AAPL, to its credit, has proven to be one of the relatively better places to be within Technology and continues to represent a huge part of SPX and QQQ. Until there’s evidence of AAPL -0.43% rolling over to break long-term uptrends (which would take a violation of $150) it looks early to give up on large-Cap Technology and it’s thought that weakness in FAANG should be buyable, in all likelihood, over the next 4-6 weeks.
QQQ/SPY ratio chart set to make its lowest weekly close in nearly 2 years
Overall, while NFLX fallout proved to be quite the shock for investors, it’s been the subsequent fallout in many other Technology issues that’s worth focusing on this week. Meta Platforms (FB) has pulled back to challenge monthly lows (and looks set to move to 150-165) while stocks like PYPL, CRM, NVDA, ANET, PAYC, CDAY, AMD, NOW are all lower by more than 3% in the last week.
Weekly Symbolik charts show the ratio of QQQ vs SPY along with an overlay of DeMark’s TD Sequential and TD Combo indicators, which have been useful in pinpointing highs and lows in this ratio in the past. Current readings show a 6 and 7 count in TD Combo, Sequential, respectively.
This suggests that there might need to be another 5-6 weeks of underperformance in QQQ 1.15% before this can completely bottom out vs SPY in relative terms. Bottom line, the decline in QQQ under last week’s lows should result in a retest of $317.45 for QQQ, and it’s likely that Technology should not bottom out right away while QQQ is leading to the downside.
If/when Treasury yields peak out in early May, such a move might coincide with Technology starting to stabilize and a potential reversal back higher for Technology. However, that looks premature to make a call of this sort right away, and better to await more evidence of either Yields reversing, or Technology bottoming.
Bitcoin’s positive correlation with NASDAQ continues, & Crypto space might experience downside volatility as US Equity weakness reasserts itself.
Bitcoin continues to show remarkably tight positive correlation with US indices, particularly NASDAQ, and Thursday’s intra-day pullback in Equities directly coincided with BTCUSD also backing off to near the lows of the session. Overall, if Equities are starting to turn down in a manner that should lead to a retest of February lows, then it could be expected that Cryptocurrencies also might be subject to some volatility on the downside into May.
Back in January of this year, my Outlook discussed May as being a possible month when Bitcoin might make its lows for the year, while Equity cycles look to potentially bottom in late June. Key levels for Bitcoin lie at 38,547, which lines up with intra-day lows of April 18. Any break of that would heighten the probability of weakness down to challenge 32,950, the lows from January.
Violations of that level over the next month would bring into view 28,600, or a maximum technical move to 26,643, which lines up with a key Fibonacci extension of the pullback from last November. Upside levels that need to be exceeded to have more confidence that lows could be in lie at 48,000 and look premature to test at this point.
