Key Takeaways
- Minor stalling out in US Equity indices, though no proof of a reversal. NFLX’s decline causes weakness in Technology and spreads to a few key names.
- Consumer Durables outperformed all other S&P Level 2 groups over the past week.
- Tesla’s technicals look sound; Yet, cycles show the potential for weakness into July before this rebounds back to highs. One should pay attention if TSLA weakens under 973.
Not much takeaway from Wednesday’s session outside of NFLX’s huge drawdown having a negative drag on Technology and metastasizing to several other key Tech stocks like PYPL, NVDA, and AMD which all fell more than 3% while DIS shed more than 5% on the day, breaking key support at $128 in the process. Overall, it’s expected that S&P’s bounce should fade in the next week and turn back lower, with the area at 4500-4525 being key resistance.
Overall, last week’s performance data from S&P GICS Level 2 groups shows the best performance having come from Consumer Durables, with stocks like RL, NKE, HAS all up more than 5% in the past week, along with noticeable outperformance from many Homebuilders like PHM and LEN. Interestingly enough, all of the top five performers this week are negative in Year-to-Date (YTD) performance, and Semiconductors along with Consumer Durables are both lower by more than 19% YTD.
Overall, oversold bounces out of weaker groups won’t lead to immediate conviction of markets continuing higher to push back to new all-time highs anytime soon.
Sub-industry Groups like Airlines, Consumer Finance and Multi-line Retail also gained more than 5% on the week, but appear temporary, technically speaking.
Consumer Durables rallied more than any other SPX GICS Level 2 group in the past week, but can this last?
This group gained more than 6.4% in the past week, benefiting from outperformance out of several key Retail names like RL, HAS, NKE. Meanwhile, many of the Homebuilders also have bounced, and PHM and LEN both showed good performance with gains exceeding 4% in the rolling 5-day period.
Overall, the S&P Consumer Durables & Apparel index looks to have held the 38.2% Fibonacci retracement area on its first meaningful pullback from the highs. While some minor stabilization in momentum looks helpful, this index needs to eclipse prior September lows before having real conviction in this group “turning the corner”. Momentum remains negatively sloped given the >20% decline in YTD terms for Durables. Bottom line, mean reversion takes time, and it’s often quite difficult to rebound from worst, to first.
Tesla beats on Top-line Earnings, & while technicals look constructive, the stock likely might weaken into July before bottoming.
Key points:
Tesla (TSLA) has been quite strong among the Autos and is holding the larger weekly uptrend from 2020 lows.
Near-term patterns appear like a base in the process of being built since last November.
After-market strength post bullish earnings has lifted the stock to 1043, exceeding highs of the last few days. This won’t be necessarily a positive for near-term technical trends unless 1150 is exceeded.
Key areas of risk lie at $973 and under near $890. Under 890 would suggest a retest of February lows into the month of July.
Cycles indicate a period of weakness for TSLA into July before bottoming and turning higher into February of 2023.
Overall, this pattern does look constructive, but given the cyclical tendencies of this stock, one needs to keep a close eye on 973 and then 890 which are key areas of support.
Tesla’s cycles look bearish into July before a big rally into year-end
Tesla’s cycles seem to show the potential for weakness into this Summer before a sharp rally back into year-end and into next February 2023.
I examined the key weekly cycles that seem to have governed highs and lows for TSLA going back since 2010. Interestingly enough, the 22-week cycle, stands out as being one of the strongest, along with a 55-week cycle. When combined into a composite, these successfully marked many prominent highs and lows going back over the last decade.
While the phasing of these cycles could change slightly, I believe these could prove to be something interesting to follow in the months to come. For those long TSLA, it’s important to keep a close eye on $973 as under this level on a close would have little support until 890. Below that over the next 1-2 months would indicate this cycle has an excellent likelihood of being true and might bottom out this Summer.
Incidentally, this is also the time when my 2022 Outlook called for the potential for a bottom for US equity indices. Thus, this takes on special importance, given that both of these line up to show a Summer low. The Blue line in the cycle composite below is TSLA’s stock price, while the pink line is the amplitude of the cycle. (One should pay more attention to the turns shown below then the extent of the rallies and declines in this composite which are not as important (i.e. a big pullback in the Pink line does not necessarily indicate the necessity to retest former lows. For now, the trend looks bearish over the next three months. )). Stay tuned.
