Key Takeaways
- Monday’s large-cap Technology weakness largely camouflaged the extent that technology was down, with XLK’s -0.66% far worse than Equal-weighted RYT’s -0.20%
- Ethereum’s two-week outperformance vs Bitcoin nearing its first real test
- Commodities defying gravity, but uptrend showing no signs of peeking out
While the market has been rather lackluster near-term, no real technical damage has taken place during the last few days stalling out. SPX patterns remain positive in the short run, and gains to challenge and exceed February’s early highs look likely which should carry SPX up above 4620 before any real congestion ensues. This wave structure currently looks to resemble a fourth wave move off the late January lows, which should allow for rallies. Yet, February as a whole can’t be simply chalked up as being a straight shot higher for the Bulls. Any rally between Tuesday and Thursday of this week which carries above 4620 would likely result in consolidation before further gains. Bottom line, trends are short-term positive and it’s right to expect upside near-term. Energy and Financials remain key sectors to favor and Technology more selectively.
Technology holding up despite Meta Platforms (FB), Netflix (NFLX) and Alphabet (GOOGL) recent downside volatility
The recent downturn in many of the large-cap Growth stocks within Technology has cast a bit of an ugly spell on Technology in recent weeks. Yet, as discussed, this has been largely concentrated in some of the largest, most dominant names within Technology like GOOGL 0.87% , NFLX 1.11% and FB and broader Technology, thus far hasn’t been affected all that adversely.
Daily ratio charts of the Equal-weighted RYT, a broader-based gauge for Technology as a whole, relative to Equal-weighted S&P 500, shown by RSP 0.77% paints a bit of a different and more positive picture for Technology.
While January did bring about weakness for Tech as a sector, as shown by the break in this yellow Trend, the larger six-year uptrend for relative strength in Equal-weighted Technology remains intact. Until/unless this is broken, markets are likely going to still be able to weather any minor weakness shown in the month of February.
Furthermore, weakness like Monday 2/7 brought about in XLK 1.35% and XLC 0.66% looks to have distorted the amount of negativity in the broader market indices, as Equal-weighted Tech was down a mere -0.20% with gains in NVDA 1.39% , DXC, SEDG, CTSH, FISV, PAYC not really reflected. This makes selectivity in Technology a must for the weeks to come. See the ratio chart below
Ethereum rally looks to be nearing its first challenge off the lows
Many cryptocurrencies have experienced a better than average bounce in the last few weeks, after having largely stabilized and turning higher – like Equities. Ethereum is one that has shown nearly 30% gains off the lows, but now lies near an important area in both absolute and relative terms that will need to be surpassed to have conviction this rally can continue.
Charts of ETH vs BTC as a gauge for Ethereum to Bitcoin have stalled out a bit in recent days after some good relative strength out of Ethereum since late January. The ability to exceed this red downtrend shown below would be constructive towards thinking Ethereum is taking the lead vs Bitcoin and could show some better relative strength into late February.
At present, this remains premature however, and charts show that Bitcoin largely outperformed Ethereum since November which was a mirror opposite of October into early December (the chart below shows Ethereum weakening over the last two months. Overall, when this ratio chart gives some evidence of breaking out, the focus will turn more towards Ethereum, but for now, ETHUSD’s bounce has not been sufficient to “turn the tide”
Finally, Commodities have been discussed as one of the areas which likely will need to consolidate gains given the extent of the run-up lately. This Invesco DB Commodity index tracking fund (DBC -1.12% ) is one way to view the broader space (though heavily Energy-weighted). Overall, until/unless there is breaks of this multi-month uptrend, it will remain prudent to have commodity (and Energy in particular) overweights.
Weekly closes back under 21.85 would serve as the first real proof of DBC trying to peak out. Meanwhile, upside technical targets seem to lie at 24-24.50 which would line up with 2012-2014 lows, along with the first meaningful Fibonacci resistance level (38.2%) off the lows. DeMark exhaustion could come about on weekly DBC charts by the middle part of March. Thus, commodities and Crude for that matter, still demand an overweight, and it looks premature to “pull the plug” with little to no technical proof, (either by price or cycles) of any impending decline.
