Key Takeaways
- This week’s breakdown in SPX and IWM to join QQQ keeps the near-term Equity trend down, and should result in February lows being tested
- GOOGL and FB breaking monthly lows means it’s still early to buy these
- Pharma ETF PPH nearing former breakout area, suggesting its likely right to buy dips
- US vs ACWI continuing to trend higher; So, while US is weak, it’s still relatively strong
Global Equity markets continue to exhibit above-average downside volatility as this week has drawn to a close. In the US, we’ve seen breakdowns in Russell 2000 index and SPX under April lows to join the QQQ’s recent break of support. Overall, near-term trends remain bearish and momentum is not oversold as both SPX and NASDAQ have now logged three straight negative weeks of performance. Importantly, key stocks like GOOGL -1.95% and FB have just broken down to new monthly lows in Friday’s trading and are thought to both have negative influence on the indices near-term given their weightings. Overall, it remains prudent to be defensive, keep position sizes small, and avoid trying to buy dips in Technology just yet. Both SPX and QQQ are expected to test February lows in the coming weeks, and yields look to push a bit higher.
GOOGL and FB’s Support violation is troubling
Don’t look now, but GOOGL and FB both have weakened down under March lows to close at new monthly lows to end the week. This is a structurally bearish development for both stocks, and given their huge weighting in the major indices, it likely will continue to have a negative influence on the major indices and on Technology as markets head into the month of May.
While it’s always important to be on the lookout for evidence of counter-trend trend exhaustion in important stocks like these, the structural damage on GOOGL -1.95% ’s break of $2490 should lead this stock down to at least $2264, which is the 38.2% Fibonacci support level of its March 2020-November 2021 rally. Under that level lies a very important area at $2025-2049, representing the 50% retracement of its low to high rally along with an important Fibonacci alternative retracement projection.
Pharmaceutical Stocks look appealing after this pullback to support
Overall, the Pharma space is an area I’m bullish on for 2022 and this remains a very positive technical sub-group within the broader Healthcare space. However, the last couple weeks have shown weakness in this group along with the broader market, and the VanEck Pharmaceutical ETF (PPH 0.88% ) has now round-tripped its breakout from mid-March and has pulled back to meaningful support near $77.50-$78.50 which is thought to be important.
Technically speaking, the fact that this area of former highs in PPH held from August 2021 into March of this year gives this lots of significance as a major area of support. Stocks like LLY, PFE, JNJ, BMY, SNY, ABBV, MRK all look attractive technically and it’s thought that this group is appealing to buy dips on weakness.
US Equities still the “Best Game in Town”
See the ratio chart below of the SPX vs MSCI ACWI index (this latter index being a gauge for World Equities) which continues to hit new heights. Thus, while there has been meaningful weakness recently in US Stock indices, it’s been the resilience in stocks like AAPL -0.28% and MSFT -1.21% that have largely kept the US in better relative technical shape than many other areas around the world.
This past week’s decline in Global equities seems to have left very few “Stones left unturned” as most countries in Europe, Asia and the Americas witnessed poor performance in Equity indices. While some of Europe did turn in positive performance this past week (EuroStoxx 50, German DAX, and FTSE 100 were positive), there were signs of each of these areas pulling back as of Friday’s close.
Overall, until there are meaningful long-term breaks in intermediate-term trend in stocks like AAPL -0.28% , or AMZN -1.53% (which I don’t expect to happen), the short-term pullbacks in many of the key “FAANG” stocks should become buying opportunities on weakness into late May or June. Bottom line, at present, the outperformance in US Equities should likely continue, making further Equity weakness something to consider buying into upon evidence of cycles bottoming and DeMark indicators lining up to show exhaustion to this downtrend. At present, this remains premature.
