Can Large-Cap Technology earnings save the Stock market?

QQQ, DJIA and SPX are right at October lows, and should attempt to make a stand this week, I believe.  However, this likely does depend on a larger rolling over in both US Dollar and Treasury yields which appears to have begun temporarily in Monday’s trading.  A sharp, high breadth rally is needed nearly right away to prevent selling pressure into late October.  Given the degree of broader market weakness, the burden of proof is certainly on the Bulls.

US Equity indices attempted to “Make a stand” at October lows on Monday as US 10-Year Treasury yields rolled over sharply after briefly eclipsing the psychologically important 5% early in the day. 

TNX fell over 15 bps from high to low on Monday, while DXY fell to multi-day lows.  However, the early bounce attempt in US Equities failed to gain all that much traction and SPX finished the day with a minor loss, while DJIA fell nearly -0.50% on the day.  SPX fell over 30 points over the final three hours of Monday’s (10/23) trading.

As discussed last week, the correlation between Treasuries and Equities has been slowly slipping, and Cryptocurrencies also have been bucking the tide, and have shown impressive relative strength despite the selloff in risk assets.

Overall, I suspect that a bottoming in both Equities and Treasuries will be a process this week, and the fact that 1/3 of the S&P 500 reports earnings this week might help to aid in stabilization.

Given that broader Equal-weighted gauges for US Equities have slipped to the lowest levels of the year, markets are truly much weaker than what might be expected when just eyeing QQQ or SPX on their own.

As seen below with QQQ, the NASDAQ 100 ETF Trust has held up remarkably well in recent weeks, thanks to the relative strength of some of the largest Technology companies within the SPX and NASDAQ.   Some charts below will help to shed some light as to the degree that QQQ’s strength has camouflaged the weakness in the broader market.

QQQ daily chart shows prices having attempted to hold support near the lows from late September which also lined up right near August lows.  Thus, this area at QQQ-351-352 looks quite important and was reached in Monday’s session (Intra-day 10/23 low was $351.12).

Arguably, a market bounce very well can happen this week given the importance of MSFT 1.21% , GOOGL 0.55% , AMZN -0.83% , and META 0.61%  all reporting earnings this week.  (AAPL 1.30%  and NVDA 3.23%  report earnings in November.)

However, technically speaking, a move back up over $370 will be important towards thinking a low of any magnitude is in place for QQQ.   Movement to $363-$365 which then turns back lower to violate $351 would be a technical negative for US Equities and for Technology.

Value Line Average shows how weak US Equity markets have become, technically

Value Line’s 1500 Equal-weighted stocks tends to have more weight as a broad-based gauge for US Equities vs. trusting the heavily Tech-weighted SPX or QQQ which can be deceptive as market gauges given stocks like AAPL, GOOGL, and MSFT being heavy constituents, percentage-wise.

The fact that Value Line’s Geometric Average (Similar to Arithmetic) fell to new lows for 2023 puts the burden on market bulls given that Technicals have been damaged on recent weakness.

Overall, this Index having weakened under 530 needs to be recouped in the near future to have confidence that US Equities are bottoming.  At present, I believe this still looks like a very weak picture.

Relative charts of QQQ vs. Equal-weighted S&P 500 still offer a compelling reason to trust Large-cap Technology

Despite the broader market weakness, Large-Cap Technology (as viewed by the tech-heavy NASDAQ 100 index ETF, QQQ 0.93% )  still appears to be holding up quite well vs. S&P, and better expected earnings this week might give this group a reason to buoy the market at a time when Equity indices have been weakening.

As shown below, QQQ has trended steadily higher vs S&P in Equal-weighted terms nearly all year and has gained ground for 9 of the last 10 months.

This is particularly important given that over 25% of QQQ constituents report earnings this week.

As daily charts show below of QQQ vs. Equal-weighted S&P’s ETF from Invesco, RSP 0.70% , the early year strength from January 2023 gave way to three months of consolidation before this turned back higher.  I expect that QQQ should trend higher vs. the broader S&P relatively speaking into mid- November before a possible peak and subsequent consolidation occurs.  (This is based on a combination of ongoing trend, while recognizing possible exhaustion which might appear within the next few weeks.) 

At present, despite the so-called “Magnificent 7” stocks (NVDA 3.23% , TSLA -1.57% , META 0.61% , MSFT 1.21% , AAPL 1.30% , AMZN -0.83% , and GOOGL 0.55% ) having worked well relative to the broader market and subsequently having garnered more and more public attention, I find it difficult to avoid this group and Technology as a whole, relative to SPX, without any proof.

Therefore, I still suspect that big-Cap Tech stocks likely will show further strength into November following earnings.  However, it’s a necessity that other sectors start to join suit in strengthening to help aid Technology sooner than later given the narrowness of the market.

MSFT and GOOGL Technicals ahead of earnings

Two very important stocks by market capitalization report earnings on Tuesday, MSFT 1.21%  and GOOGL 0.55% .  Overall, more than 25% of the NASDAQ 100 index will report this week, making this incredibly important for both SPX and QQQ.

As shown below, MSFT 1.21%  has held up quite well despite this year’s downturn from late July.  MSFT lies less than 5% away from its all-time weekly high close of $345.24 made just three months ago.

Importantly, this all-time high close successfully retested the former peaks from late 2021 before consolidating in recent months. However, this minor pullback has done little to no damage to intermediate-term technical trends.

The shape of the rally off last year’s lows does not look complete, from an Elliott-wave perspective and would benefit by a push back up to new all-time highs.

Moreover, such a move would represent a “Cup and Handle” type pattern when viewing weekly charts going back since 2021.  In the short run, last month’s 9/14/23 high close of $338.70 looks quite important, and I suspect this will be tested sometime in the weeks ahead.

Movement over $339 on a daily close should have no legitimate resistance until $365, and I expect this area to be tested and possibly exceeded this year.  Momentum remains positively sloped on monthly charts, while DeMark exhaustion remains quite premature across multiple timeframes. Finally, its pattern of consolidation since July has not done any damage to its existing chart and MSFT remains within striking distance of all-time highs.

Overall, while it’s fashionable to claim that Big-Cap Tech is a high conviction “consensus” trade among retail investors, I don’t mind being in MSFT and find this quite attractive technically.  I expect a push back to new highs.  Until/unless Technology in relative terms starts to turn down more sharply, this remains an area of high conviction on the long side for me.

GOOGL is also quite bullish technically, but less attractive than MSFT according to my indicators.

Similar to MSFT, GOOGL also peaked out in the latter part of 2021 and has been on the recovery trail over the last 18 months.

Unlike MSFT, Alphabet (GOOGL 0.55% ) has not yet tested all-time highs, and this level lies up just above $150 which was formed nearly two years ago in mid-November, 2021.

This requires just an 11% gain to reach former peaks from November 2021, and I expect this likely can achieve this in the weeks/months to come.

While GOOGL has proven to be stronger performance wise than MSFT since July, MSFT appears like the better stock from a risk/reward basis to me technically speaking.

Overall, both of these stocks, MSFT and GOOGL, appear bullish and look like appealing technical longs in what’s turned out to be a very difficult market in recent months.  I expect that both MSFT and GOOGL likely test all-time highs before any meaningful pullback in Technology vs. the broader market happens.