Bounce largely uninspiring but a tradable bottom looks near

Monday’s bounce failed to raise confidence of any type of low in this pullback, as SPX and DJIA fell to close well off early day highs.  However, NASDAQ remained higher by more than +0.60%, or nearly double the gains in SPX as of Monday’s finish.  Gains were a relief, however, following the worst week of the year for US Equities, and three straight weeks of losses.

Treasury yields and the US Dollar both stalled out and have consolidated gains in recent days.  Treasuries look likely to reverse course and very well could get a reprieve from recent selling given the lack of bond auctions for the next couple weeks.  Yields have gotten overbought, yet insufficient evidence is yet at hand to have confirmation of any reversal.  TNX getting down under 3.84% would be the first real signal.

Technically speaking, SPX remains at/near levels where it should bottom out and turn higher to finish off a month which has proven more negative than seasonality initially had suggested.  Pre-election positive returns have failed to materialize with one trading day left in the month and SPX lower by -2.5%.  Moreover, cyclical projections point higher into mid-March.

However, Technology has certainly bucked the tide, with the GICS Level 1 SPX sector turning in the best performance of any of the larger S&P GICS level 1 sectors in the month of February.  Note, this wasn’t based on strength in NVDA -1.96%  alone, as MPWR -0.54% , FTNT 0.11% , ANSS 0.00% , ANET -0.24% , FISV, ADI 0.04% , and ON have all turned in performance greater than 5% in the rolling day 30 day period ending 2/27/23.

Importantly, sentiment has buckled sharply in the last two weeks, with most investors firmly in the hawkish Fed camp, expecting higher rates for longer.

SPX has important support near its 38.2% Fibonacci retracement of the prior rally off October lows.  This lines up with a 61.8% Fibonacci retracement of the rally from late December along with lining up at a 61.8% time retracement.  (Note, the 50% price and time levels failed to inspire much bounce, and a bit more selloff into Tuesday cannot be ruled out.

Looking back at the 60-year cycle along with Gann’s Mass Pressure Index, this shows a prominent low/end to this choppiness at the end of February, before turning up sharply in March.

As discussed previously, SPX looks to be in “No-Man’s Land” currently and requires either a rally back over 4060 to set its course for higher prices to 4325.  Conversely, a breach of 3900 would argue for a retest of December 2022 lows.

While the short-term (2-3) day SPX forecast cannot be called super-bullish just yet barring a close back up above 4060, I’m favoring that any further declines likely hold 3925-30 right near an area of prominent Fibonacci and Gann-Based support either Tuesday or Wednesday before turning higher.  Any breach of 3900 is not expected, but would postpone rallies, allowing for a final retest of last December lows.

As mentioned, the intermediate-term bullish cycles combined with promising sector rotation, positive momentum and breadth and recent contraction in bullish sentiment should create a stellar risk/reward for SPX to potentially bottom into late February.

As seen below, SPX looks close to bottoming, but it’s still difficult from a wave perspective to think that lows are officially in.  S&P Futures hit 3950 which was a Fibonacci target, and SPX cash has both Fibonacci and Gann based targets down at 3925-30.  Thus, one final low cannot be ruled out, but should be buyable, Tuesday-Wednesday before prices turn higher.  Under 3900 would change this thinking.

Latest MLIV Pulse survey lines up with a big contraction of bullish sentiment in February

As seen below, only 11% of respondents in the latest MLIV Pulse survey (global survey) of the 2,224 participants plan to increase their exposure to S&P 500 over the next month.

This represents a record low for this survey.  Whether one can attribute this to increased hawkishness of the FOMC, an ongoing negative earnings picture, or ramped-up geopolitical risks, this pessimism is exactly what investors want to see after minor pullbacks which haven’t caused much technical damage.

I contend this is one of the few times in recent years where fundamentals and technicals have diverged from one another. Technicals seem much more bullish than the Fundamental and macro picture, depending on one’s take on inflation and/or earnings.  The next couple weeks will go a long way towards paving the way for a big bounce back in March, or signs of further technical erosion.  Bottom line, I’m anticipating a bullish March for US Equities.

Homebuilders have pulled back to attractive support to buy

Today’s pending home sales data having jumped by the most since 2020 certainly is causing many investors to question whether it’s possible to have a recession if housing demand remains strong.

Technically speaking, the Homebuilders ETF, (XHB) has defied gravity seen by many sectors as 2023 has gotten underway.  Prices advanced to the highest levels since Spring 2022, and now have pulled back over the last 2 of 3 weeks to an area right near uptrend line support.

Given the bullish fundamental backdrop along with a bullish technical view based on momentum and positive price gains in recent months, this minor “backing and filling” likely should be buyable at $65-$67 this week.

One should consider XHB attractive at current levels, and an even better risk/reward on any weakness Tuesday and/or Wednesday of this week.

Top Homebuilder names technically include: BLD -0.44% , BLDR 1.41% , CSL 0.20% , TOL, DHI 0.49% , PHM 0.40%  and LEN 0.44% .

Robotics/AI-based ETF also nearing attractive support after weakness

Given all the rage with Artificial intelligence (AI) these days and the success of ChatGPT, it’s important to take a close look at the Global X Robotics and AI ETF, or BOTZ -0.58%   which has slide from $25+ down to $23.55 in trading over the last week after a very robust period of gains off the October 2022 lows.

This ETF contains 43 different names of companies involved with AI, with notable industry giants such as NVDA -1.96% , ISRG 0.39% , ABBN.SW, and Keyence (6861.T) and Fanuc (6954.T) representing the top five holdings, comprising roughly 45% of this ETF.

As seen below, after a sharp rise from late December into early February, BOTZ -0.58%  has pulled back lately and now lies just above key trendline support which I feel should hold technically.

One should consider the area of $22-$23 as attractive support on weakness.  I expect BOTZ to likely bottom here and turn back higher to advance to near $28.50 which is a technical target.

Overall, minor technical weakness as part of intermediate-term strength typically represents a time to consider an asset as possibly nearing support after recent consolidation.  With regards to BOTZ, that lies just below current levels, and I suspect this might be tested Tuesday/Wednesday of this week.