Technical Strategy Video:
Key Takeaways
- US Equity trading lows look near; Yet, Friday’s churning hasn’t provided confirmation yet, which likely happens next week, either at lower or higher levels.
- Sector-wise, the rising US Dollar looks to have hurt Industrials this past week, and Discretionary and Materials also underperformed, while Tech held up relatively better
- ARK Innovation ETF looks like a good risk/reward to bottom out in the short run, after a 50% decline in nearly the last three months.
SPX managed to finish a very negative month on a positive note, as the last two trading sessions successfully cut its negative performance to just -6.0%. Yet, as to whether the market has officially bottomed for the Winter, two areas look important on the upside: 1) 4519-20 would allow these two measured moves off the bottom to be Equal. 2) 4582 lies at 1/10/22 intra-day lows. Exceeding this would drive prices back to new all-time high territory. Until then, I suspect this will prove to be a “Two-steps forward, One-step Back” type bounce.
Overall, it looks right to have a positive bias on US Equities into March for an above-average snapback. Yet the one negative concern is a tough-to-reconcile Elliott-wave pattern that still shows the most probable scenario as hourly SPX being in a Wave 4 type formation. Regardless of whether markets have officially bottomed, a long stance looks right, looking to buy dips if given the chance in the week(s) to come. Being above SPX 4450 certainly has allowed for a price surge higher. This will benefit price momentum; Yet for true technical confidence, 4582 needs to be exceeded.
Philly Semiconductor index looks to have bottomed where it needed to
Semi stocks look to be roaring back with a vengeance after their early ~20% decline since 12/27 peaks. The latest 7% SOX rally in just two trading days gives some near-term conviction that this particular sub-sector within Technology is finally bottoming out. Rallies look likely to 3676.77, which should have importance in causing resistance to this bounce. At present, stocks like NVDA, AMD, NXPI, KLAC, QRVO, LRCX all bounced more than 5% in Monday’s trading to finish the end of January. These stocks all experienced meaningful near-term setbacks, though the larger structure remains in good technical shape.
China kicking off its Lunar New Year with a very bullish rally
China’s recovery was sufficient enough to climb back above initial resistance which was thought to be the first meaningful challenge to its recovery. The KraneShares CSI China Internet ETF (KWEB) managed to gain +9.7% during Monday’s session, which successfully recouped 35.72, the area near 1/18/22’s swing lows. This gives conviction that a move back above $40 likely happens during the month of February.
While RSI on hourly charts has grown extended, it’s thought that Monday’s rally in KWEB helps this rally up to initial Fibonacci targets near $60. This sounds extreme from a percentage standpoint, but represents a mere 38.2% retracement of what this has lost since February 2021. Lows near 32.87 will be equally important to hold to keep this bounce intact. While not expected to be tested right away, this level serves as a risk level for longs.
Emerging Markets showing more proof of “turning the corner” Finally, it’s worth revisiting the EEM vs IDEV ratio pair, as a gauge for Emerging market strength. The Ishares MSCI Emerging Index fund, on a relative basis vs the Ishares Core MSCI International Developed Markets ETF. Technically this had begun to give some indication of bottoming out last month, but now has officially broken out of downtrends extending back since February 2021, or 11 months ago. Given China and Brazil’s successful stabilization and push off the lows, this will be an area to overweight in the weeks/months to come. Note: the formerly strongest areas of Emerging Markets (EM) like Taiwan, haven’t shown the same degree of gains as China or Brazil in recent days, so these latter two countries would be a bigger area of focus for Overweights for rallies into the Spring
