Key Takeaways
- Tuesday finally produced some follow-through bounce, yet cannot be counted on to extend past 4525 given the current wave structure before turning back lower
- Commodities weakened Tuesday in a manner that could allow for additional near-term follow-through, particularly in precious metals and energy.
- Netflix after hours decline looks to require more selling pressure to reach support
Markets finally showed some evidence of rallying off recent lows, after nearly five days of unchanged prices. My own work suggested that markets were close to rallying last week. However, little to no evidence of this materialized until Tuesday. Overall, I suspect that Tuesday’s bounce likely could carry up to 4500-4525 before ending and turning back lower. Ultimately, I don’t expect that SPX-4631 will be taken out before prices turn lower and challenge February lows which lies at 4114. However, the next 3-5 trading days very well could allow for a further bounce to unfold, and this might materialize in Cryptocurrencies as well. Bottom line, markets seem to have carved out an Elliott-wave-style 5-wave decline, so it’s tough to expect a move back to new highs, and bounce attempts ultimately should fail and lead back down to new lows. 4370 is important, and then 4316, but rallies likely are expected to fail within a week.
Technical Developments over the last 48-72 trading hours
Many of the hardest hit sub-industry groups like Transports, & Semis look to have made short-term lows near March bottoms and are outperforming on this recent bounce.
Breakdown in Technology still needs to be recouped before weighing in with much confidence that this US Index bounce should continue.
Elliott-wave structure for US Stock indices shows the recent pullback as having been “5 Waves” which should lead to additional weakness into May and is unlikely to represent a meaningful low.
Treasury yields continue to ratchet up higher and still appear early to peak out, but I do suspect to see meaningful Spring highs in yields by the end of April/early May.
Commodities like WTI Crude, Precious Metals, Cotton, Copper, and Wheat all made above-average declines to multi-day lows Tuesday which suggests more Downside might occur.
Sentiment readings on AAII reached nearly an all-time record low for Percentage Bulls; Yet, more is needed to call Sentiment truly bearish given relatively low levels in the VIX along with Equity Put/call ratio.
The Equal-weighted GSCI index for Commodities on Bloomberg looks to be stalling near prior month’s highs, and turned back lower in trading on Tuesday. I suspect that near-term consolidation can happen, and it’s premature to buy dips in Precious metals, or Energy.
Precious Metals likely to pullback to consolidate recent gains
Gold and Silver were well on their way to a decent rally before Tuesday’s shellacking, which saw Silver and Gold lose more than 2%. This looks important and negative in the short run, and technically it’s right to expect a test of March lows and temporary undercut, which should provide attractive buying opportunities for precious metals in May or June.
Overall, the selloff that began late last year appears to be very much ongoing, and Silver’s pattern, shown below, looks to require a possible move down to $23 before this finds support and turns higher. Bottom line, while both Gold and Silver look attractive for intermediate-term gains, this recent consolidation should have a final flush, which should provide a very attractive entry point.
If/when Treasury yields start to peak out and turn lower in the months ahead, this would provide an excellent time to be positioned in precious metals, vs expecting they can rally when yields are spiking up dramatically. I’ll give this area a close look into late April/early May on evidence of weakness to try to time buying dips at attractive levels from a risk/reward perspective. At present, I suspect that the near-term pullback in commodities can continue into May.
When should Netflix bottom out? After-hours Drop has shed 22%
Many are eyeing some of the hardest hit stocks like FB and NFLX as “FAANG” names that might now be in position to snap-back after lagging some of the other better performing names like AAPL, MSFT or GOOGL. Technically speaking, I feel it’s early to expect too much out of the laggard names, as momentum remains quite negative on several timeframes and it will take some serious price and momentum improvement before thinking that any kind of oversold bounce can extend meaningfully.
After hours in Tuesday’s trading, NFLX’s announcement post Earnings of a loss of 200k customers in the first Quarter seemed to be a negative for this stock, and NFLX fell in After-hours trading to near $270, or down 22% from Tuesday’s close. Recall that the initial selloff found support right near the 50% Absolute retracement level of NFLX’s all-time highs near $701 back in January, always an important Retracement level to monitor.
Unfortunately, structurally speaking, trends and momentum are negatively sloped on weekly charts and prices will need to show stabilization sooner than later to expect NFLX to start trending back higher. Prices have violated six-year uptrends from the 2016 bottom on weekly charts (not shown) putting the stock in an intermediate-term bearish position, and monthly MACD has not yet reached oversold levels.
Structurally I can make the case that late 2018 lows at $231 could line up with an area to consider buying dips in NFLX and above that lies $252. Thus, the zone of $231-$252 looks more likely to coincide with a trading bottom, vs looking at Tuesday’s (4/19/22) after-hours move to $270 as having too much significance. Given thoughts of Stock indices pulling back in May, it looks early to buy dips at present, and investors should likely get better entry points in the months to come.
