Technical Strategy Video:
Key Takeaways
- Thursday’s reversal keeps SPX range-bound within a ~200-point range for most of this week. Difficult to expect upside follow-through until 4450 is exceeded
- China decline looks to have final flush into February which should present attractive buying opportunity coinciding with cycles bottoming and turning higher into Summer
- Apple post-market surge getting close to important near-term resistance at 167-8
The choppiness of this week has proven to be a source of frustration for bulls and bears alike. SPX Futures, as shown below, have been caught in a volatile 200-point range as part of the ongoing downtrend from mid-January. With two days to go in the month of January, this month stands a realistic possibility of finishing lower by 8% or greater. In the short run, there are increasing reasons to expect a low should be in place soon, as early as next week. However, the wave structure along with lack of DeMark exhaustion still creates a window for a final test into the first week of February. Bottom line, dips should be used to buy at 4180-4200, while any daily close above 4450 would also be proof that this decline has come to completion. It’s anticipated we get an answer to how this range will be resolved in the next 2-3 trading days, and in the bigger scheme of things, trends should be higher into the all-important FOMC meeting in the month of March.
China likely bottoms in February and decline should finally come to an end
Dip buyers have had a tough time in getting any recent follow-through to rallies lately. While there has been some stabilization and slowdown in the downtrend for FXI since last February’s peak, rally attempts have not been successful in surpassing existing downtrends over the last 11 months, and reversed back lower this week to new multi-week lows.
Unfortunately for longs, this reversal coinciding with US Dollar strength likely takes FXI a bit lower into February before any meaningful bottom is in place. However, as mentioned last month, prices have gotten to appealing risk-reward territory to buy dips and gains are likely from compressed levels in 2022. Near-term, the important area to focus on is 35.23 on the downside which equates to January lows. Any break of this should result in a final pullback to test March 2020 lows near 33.10, representing a meaningful low from where to expect some possible support. Overall, this remains an intermediate-term long which should show some additional proof of bottoming and turning back higher next month.
FXI Cycle composite using three key weekly inputs suggests gains this year
Interestingly enough, when taking a close look at the cycles which have marked the last few major peaks and troughs in FXI over the last 5 years, we see that the Cycle composite looks very close to bottoming out and turning back higher. This directly coincides with my bullish view of China’s Equity market reversing course and starting a new bullish advance.
For those interested in the lengths of the cycles utilized, I’ve concentrated on three separate cycles of 86 weeks, 41 weeks and 29 weeks which all share harmonic relation to one another. When put together as a composite, this pinpointed the decline in 2018 and 2021 and even the pullback that bottomed out into spring of 2020. Now this should be bottoming, and I expect China to start to turn up in February. Movement up above last week’s $39.78 high would suggest this rally has begun. However, for those looking at buying dips, the area near 2020 lows near $33.10 looks like an excellent risk/reward if reached in the next few weeks.
Apple bounce in the after-market looks very close to make-or-break resistance.
Apple (AAPL-$159.22) remains a very important part of SPX and the NASDAQ along with many popular Technology ETF’s, making the stock’s chart a vital part of how to view Technology as a whole. Thursday’s post-market trading saw a move up to near $167 as of 7pm EST, which lies right near the prior area of the breakdown for AAPL.
As many might rightly concluded when viewing this chart, the violation of the Head and Shoulders pattern directly coincided with this stock’s weakness over the last few weeks. However, its bounce attempt thus far has proven choppy and overlapping (which often add some doubt as to the longevity of any bounce).
Bottom line, while lows in this stock look near, an ideal area to consider AAPL looks to be $150-155, on any weakness into February. Despite AAPL beating its revenue and earnings estimates with yet another impressive number, it still looks early to expect a meaningful surge in this stock until it can successfully recover above $168. Thus, it looks right to have patience with AAPL, until this can successfully recoup prior lows. Until this happens, dips would make this attractive to buy into February which lies right near trendline support from last Spring.
