Regional Banks will take a bit more time to bottom out

Broad-based selling gripped SPX for a second straight session as 410 of the 500 SPX names fell in trading, and SPX has now given up around 25% of its prior rally from mid-March.

Overall, it looks a bit early for SPX to bottom, but this could be likely into Friday of this week into Monday 5/1 on further weakness.  Momentum is not yet oversold, but it’s likely that recent escalation in some of the shorter-term sentiment measures like Fear and Greed, might evaporate on weakness into next week.

Of particular technical concern lately is the degree that leading sectors like Semiconductors and Transportation names have been weakening.  However, Technology cap-weighted ETFs like XLK -0.25%  have held support as of Tuesday, 4/26/23.  MSFT was certainly helpful in this regard, and at the time of this writing, (4:30pm EST post market close), META -0.31%  looks to be trading higher after-hours, at $229.50, vs. its 4:00 pm close of $209.40.

While short-term trends have rolled over back to negative, the intermediate-term trends and momentum are not yet giving way, and it would require a decline under SPX 3800 to have real concern about a larger, more meaningfully bearish decline, technically speaking.

Both Treasury yields and US Dollar still look to move lower into the month of May, and yields in particular might not bottom out until early June.  Areas of importance on any break of 3.25% from 4/6/23 lies at 3.00% which has initial importance as a psychological level.  Underneath might reach 2.85%, though seems less likely right away.

Areas of support I discussed yesterday lie at QQQ 304-308 while S&P 500 could pull back to 3940-75 before bottoming out.

Overall, I’m viewing this decline as short-term in nature only.   Following a bit more weakness into Friday 4/28, to Monday, 5/1, markets should start to stabilize ahead of the May FOMC meeting. 

While April certainly didn’t obey traditional seasonality as planned and trade higher, it’s also not unrealistic that the bearish month of May might prove tricky and not be nearly as immediately negative as Market bears expect.   The 50% retracement of the mid-March-April rally should prove to be an important battle ground heading into May FOMC.  Stay tuned.

Regional Banks ETF might decline under $40 into next week before signaling any downside exhaustion

Patience looks to be required in Regional banks as this group is not nearly as strong as the large Commercial banks which have acted much better in recent weeks.

As shown below, the KRE 0.85% , or S&P Regional Banking ETF, has dropped to the lowest levels since late 2020.

DeMark related exhaustion looks to be premature by 3-5 trading days (Not in place just yet) and could result in additional weakness from the Regional Bank group.

This also looks to be a temporary negative for Small-caps, which have tried to stabilize, but unfortunately have not gotten much traction with Regional Bank weakness.

Overall, technical targets lie lower near $38.40-$39.50, an area that lies just above the 78.6% Fibonacci retracement level of the prior March 2020-January 2022 rally.

Bottom line, patience still looks necessary for those investors who are trying to “bottom-pick” the Regional Banks. 

I think it’s wise to hold off on being too aggressive in expecting this sub-sector to bottom until KRE 0.85%  moves a bit lower into more actionable support.  Conversely, strength back up over $44.50 would be encouraging.  Both , for now, are premature.

Microsoft gaps higher, and nears short-term resistance

Microsoft has certainly delivered performance-wise at a time when many stocks have begun to struggle in recent weeks.

After adding MSFT to my UPTICKS list at $254.80, it looks right to remove this stock at this time at $295.40

A few reasons stand out as being problematic for  MSFT in the next couple months:

First, MSFT has risen to its 61.8% Fibonacci retracement level of its prior high to low range from November 2021 to October 2022 lows.

Second, Momentum has neared overbought levels per RSI (Not technically overbought on daily charts).

Third, following DeMark related bullish exhaustion at the January 2023 lows on weekly charts, this now could show a possible TD Sell Setup as of next Friday on a close above $291.58.

Fourth, markets have begun to show some rotation away from Technology, and my expectation is that interest rates likely bottom in May and turn back higher.   Given that Tech benefitted from rates falling, it might underperform further on signs of rates turning back up.

As shown below, prices clearly are still trending higher from early this year and look to be in a fifth wave of the rally which began in late December 2022/early January 2023.  While MSFT very well could have additional upside in the next 1-2 weeks, I don’t feel this stock is nearly as good of a risk/reward near $300.

Thus, I will revisit MSFT on weakness in the months to come, but feel like consolidation could be more likely than continued gains in the month of May.

Progressive breaking down from Head and Shoulders

In recent weeks, we’ve seen quite a few instances of various Insurance stocks starting to break down, and Progressive (PGR 0.96% ) has been one of those which has shown weakness on heavy volume.

In the last few days, PGR 0.96%  violated the lows of a large Head and Shoulders pattern, which likely results in further deterioration in the weeks to come.

Volume spiked on the weakness in mid-April, and I expect this likely weakens down to possibly test January 2023 lows.  

I’m removing PGR from my UPTICKS list given this near break of support and recent weakness, and will look to add something in its place next week.  I had added this at $130.60, and as of Tuesday’s close (4/26) it looks likely that PGR might dip below the entry price, making it right to remove this name from UPTICKS following a good likelihood of support violation.