SPX and QQQ look to be trying to stabilize and rally after a very sharp two-week decline into this week. Trends in DJIA and Equal-weighted S&P 500 look far better in the short run, than SPX and QQQ which remain within two-week downtrends. Thus, while Friday’s rally was encouraging, it can’t be said with confidence that a move back to new highs should happen right away. However, it’s expected that next week brings about a rally into FOMC meeting, but sufficient upside progress needs to happen to argue that this move can continue without any further weakness into August. The current cycle composite seems to show a larger likelihood of an early to-mid- August bottom vs. late July. Thus, while it’s right to be optimistic for an eventual push back to new all-time highs this Fall, I suspect it will prove choppy, and not without some backing and filling. US Dollar and Treasury yields are both beginning to rollover which looks good for risk assets given recent correlation trends.
Overall, the market bounce looks to have occurred on schedule, and I remain optimistic that this can carry Equities higher into next week’s FOMC meeting. However, more will need to occur to suggest this rally can get back to new highs without any further consolidation into August.
Momentum has turned more negative given the selling from mid-July, and the downtrend remains in place from mid-July, following a break of the uptrend from April. Thus, while there remain many reasons to be optimistic on Equities between now and early-to-mid-September (as well as a rally the last week of July), it’s not wrong to say that Equities have entered a more difficult period in 2H than what happened over the first six months of the year.
The market’s positives have to do with intermediate-term trends from last October being intact, and leading groups like Technology, Industrials and Financials showing great technical strength, despite the minor pullback in Technology. Moreover, the “Summer of Small-caps” arguably has begun, and the broader market participation has picked up markedly in recent weeks which has been helpful to market breadth.
Overall, as I’ve been discussing over the last week, I view this Technology pullback as being healthy given that it’s “come back to life” a bit, and has helped to ease the amount of divergence vs. other sectors. It’s important to also reiterate that the easing of divergence” is a bigger positive thanks to sectors like Financials, Discretionary, Industrials, REITS, and Financials kicking into gear. Furthermore, the move in Small, and Mid-caps has been very encouraging.
As the hourly S&P 500 cash index chart shows below, the rally needs to accomplish more to have conviction that a larger bounce has begun.
Price remains under the ongoing downtrend from earlier this week’s most recent downtrend, and a rally back over 5491 is necessary, which would help to fill the recent gap made this past Wednesday, and 5550 will be the area to surpass to help instill more confidence.
2 Scenarios look possible in the next couple days:
- SPX rallies to 5525-5550, then stalls and turns down to recent lows into early August to form a larger cyclical low which the cycle composite suggests could be possible.
- A rally right back to highs happens which necessitates initially a move over 5585. This can result in prices pushing up to 5569 and would be healthy for the technical picture. In this case, a rally to 5700-5750 could happen ahead of a larger seasonal setback in September.
S&P 500 Index
Overall, despite the outperformance in Small-caps, it’s still hard to make the call that either QQQ or SPX should move back to new highs right away. Elliott-wave patterns suggest that option #1 listed above very well might play out. Thus, a bounce into FOMC happens, and then is given back into August. Furthermore, charts of AAPL, NVDA and TSLA don’t yet give conviction that they’re set to move back to new highs right away.
Regardless of which scenario plays out, trends and cycles look positive for gains into September ahead of a possible consolidation into Election-time. Yet, I don’t suspect this will be an easy linear move higher in the back half of 2024. Increasingly, the Tech-shakeup is suggesting a tougher road ahead, which I feel won’t truly materialize in larger form until late September into October.
AAPL not showing the kind of strength as Small-caps and/or DJIA, and remains trending lower
While the broad-based rally helping many sectors show strength is encouraging, this hasn’t yet helped AAPL break its downtrend from the past week.
AAPL remains arguably the most important and one of the heaviest percentage constituents of the SPX and QQQ.
The churning seen on hourly AAPL charts today doesn’t look to be the most bullish formation that can lead this higher. Normally these represent fourth-wave triangle patterns that give way to a final pullback to new lows.
Overall, $216 is a key level for AAPL early next week. If this is broken, then a pullback to $210-$212 looks possible which should set the stage for a low, and a subsequent sharp bounce into next week’s FOMC.
However, any move down under $214.64 would create five visible waves down from mid-July. While this would allow for AAPL to bounce, this also would translate into potential additional weakness into August before a larger bottom is in place.
In order to turn bullish on AAPL right away for a push back to highs, it’s necessary for the stock to rise back above $221.92.
For now, AAPL along with NVDA, MSFT and GOOGL all need to be watched carefully given their representation within the broader US indices and ETF’s. Despite the constructive price action being seen in DJIA, IWM and many sectors, many of these stocks above have been languishing and will need to start to turn higher, sooner than later to have confidence of Large-cap Tech starting to turn back higher.
AAPL
AAPL cycle composites look to have turned down on time; What’s next ?
The AAPL cycle which I presented last month looks to have turned down on schedule following its steep rally into mid-July.
The cycle composite from the Foundation of the Study of Cycles showed the steep advance being followed by an equally steep decline.
As can be seen in this composite below, while it doesn’t always work as perfectly as it has on past swings (and this is an important point given the possible change in phasing) it indicates a very choppy period between now and November ahead of a big rally higher.
Given the downward bias in cycles from September into November on many US Equity indices along with stocks like AAPL which look choppy at best, Small-cap performance is preferred, expecting that the broader market very well could outperform large-cap Technology in the near-term (and potentially over the next couple months).
For new subscribers, the pink line shown below is based on amplitude, not magnitude, and does not require prices to pull back to test lows, as the cycle composite might indicate below. The turning points tend to be more important than the extent of these moves. However, this does indicate that additional weakness might be possible into August.
AAPL (Cycle Composite)
IWM vs. QQQ still shows excellent potential to push higher after recent breakout
The relative charts of Russell 2000 ETF (IWM -0.03% ) has continued to extend after having broken out vs. QQQ two weeks ago.
This looks to be a very strong move and does not show any indication of exhaustion based on traditional DeMark-based counter-trend tools.
Thus, additional relative strength looks likely out of IWM and it looks pretty convincing that outperformance vs. QQQ can occur into next month.
Technically speaking, I expect a retest of last December’s highs, and this very well might be surpassed.
Russell 2000 (IWM) / Nasdaq 100 Index Ratio
