Bounce likely early next week, but likely proves short-lived
- QQQ and SPX should bottom initially at August lows, but meaningful rallies might prove difficult until rates peak.
- Telecomm stocks have begun to stabilize a bit and deserve some attention.
- Pot stocks might show some life given upcoming legislation talks.
US Equity indices like SPX and NASDAQ likely can stabilize temporarily following this week’s pullback to challenge August lows. However, it’s imperative that Treasury yields and US Dollar begin to roll over quickly, as further gains could still pressure stock indices a bit more into early October before a bottom. I suspect that any Equity rally next week likely would prove short-lived until more meaningful signs occur of Rates rolling over
Given that Stock indices peaked out near the Rosh Hashanah holiday, it’s always important to be on the lookout for a possible Yom Kippur low to materialize. This could point to a Monday 9/25 bottom for US stocks just as stock indices are challenging August lows.
SPX rallies will need to exceed 4495 to have real proof of a bottom. Until that happens, bounces next week could encounter resistance into end of September/early October and then weaken again for a final “flush”.
The following levels look important next week on a rally:
SPX Futures: 4442-4466
NASDAQ Futures: 15228-15348
DJIA: 34300
NASDAQ futures hourly chart is shown below. Despite the market losing its early rally attempt on Friday, pullbacks did not do much damage, and QQQ still held up positive on the day, thanks to Technology outperformance. I expect an early week rally next week.
QQQ still not weakening too dramatically vs. SPY
QQQ actually has held up far better than SPY in recent days, so despite SPY having shown a minor break of August lows along with S&P Futures, there remains positive divergence with QQQ holding up in much stronger fashion.
This relative chart shows the QQQ outperformance vs. SPY into July, followed by minor sideways consolidation. While this ratio looks to have a chance of minor weakness into October, this should prove to make QQQ quite attractive from a risk/reward basis, given the intermediate-term degree of relative strength.
The key area to watch carefully will be August lows over the next 2-3 weeks. The ability to hold this area in QQQ vs SPY charts should then be followed by a push back to new highs.
If August lows are broken, however, this would indeed lead to minor weakness, but should likely prove short-lived. My thinking is that AAPL breaking $172 would serve as the catalyst for such a move, but I do not expect AAPL to break $161 on weakness.
See the relative Symbolik ratio chart of QQQ vs SPY below.
Telecomm stocks should be worth exploring given recent strength off their 52-week lows
Despite yields having just broken out to the highest levels in over 15 years, Telecomm stocks like AT&T (T) have successfully exceeded its respective downtrend and has begun to push higher.
This index looks to have made a five-wave decline into August lows last month. A rally looks to have begun which is most clear in stocks like T.
Overall, given the prospects of Treasury yields starting to roll over in the near future, Telecomm might be appealing to consider for a larger bounce. AT&T, for example, pays a 7%+ dividend, and technically is much more appealing now than it was a few months ago.
While rallies from 52-week lows normally take time to develop, I feel this sector is an appealing risk/reward for intermediate-term focused investors. T looks more attractive than VZ at present.
A weekly charts of the S&P Telecomm index is shown below.
Is it finally time for Marijuana stocks to start rallying?
The Pot stocks might finally begin to show some strength given the upcoming bi-partisan legislation to open legal banking channels to cannabis businesses.
(SAFER), the Secure and Fair Enforcement Regulation Banking Act, would give state-legalized marijuana businesses access fo banking services and also prohibit regulators from ordering a bank to close an account based on reputational risk (Bloomberg)
It’s been reported that Senate Banking Chairman Sherrod Brown of Ohio said his committee would vote 9/27 to send the legislation to the floor.
Technically, this news sparked a rally in many Pot-related names this past week, and ETMFG Alternative Harvest ETF (MJ 2.92% ), (which tracks companies likely to benefit from the increasing global acceptance of various uses of the cannabis plant) made a minor breakout on much heavier volume than had been seen in recent months.
While it will take some time before stabilization efforts in these companies and this ETF lead the group meaningfully higher given the hugely negative momentum and trend of recent years, this past week’s movement makes the entire space appear like an attractive risk/reward technically speaking given short-term price and momentum improvement and volume.
I suspect that a positive vote along with plans from Department of Health and Human Services to recommend to the Drug Enforcement Agency for reclassification of Cannabis from Schedule I of the Controlled Substances Act to Schedule III would likely help this entire group likely begin to show much better price action in the coming 8-12 months.
Technically, this past week’s trading makes MJ 2.92% attractive for the first time in more than 12 months, and despite the ongoing market turbulence, my thinking is that after a huge bear market in recent years, the downside for these companies stocks likely could prove limited. At the very least, the bi-partisan efforts to try to change the rules seems to suggest that Pot stocks are a much improved risk/reward for the first time in months.
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