Key Takeaways
- Monday’s reversal was a short—term positive on a 2-3 day basis, and could result in US indices bouncing. However, this should prove temporary only.
- “FAANG” likely should stabilize ahead of this week’s earnings.
- Commodity weakness could extend near-term and Energy ETF technical damage likely causes further near-term consolidation for Energy which should be buyable into May.
QQQ has now pulled back to within striking distance of March lows at a time when Technology’s “Big Five” are set to report earnings this week to the tune of roughly $340 billion dollars in revenues. Overall given a 10% decline in QQQ just in the last three weeks alone, I suspect the risk/reward for shorting QQQ so close to prior lows is likely sub-par. Markets seem to be nearing a level where a “minor” bounce could occur. However, for many investors, taking such a short-term perspective might not prove useful. Rather, it should be important to reemphasize that minor rallies should prove short-lived, anticipating a test of February lows into May. This would directly line up with my cycle composite forecasts, max near 183 before prices find support and start to bounce into the month of February. Bottom line, 335-336 stands out as being important on any bounce, while 318 will be key initially on declines. Under 318 could lead briefly to 301 or 282 into May/June timeframe before a meaningful low.
“FAANG” nearing former lows likely results in short-term stabilization/bounce as “Big 5” Earnings get underway
Given a huge week of earnings this week among the Tech favorites like AAPL, MSFT, FB, GOOGL, and AMZN this week, which could show 1Q Net income of $73.1 billion on Revenues of $343.8 Billion (Per Bloomberg estimates) this stands out as being one of, if not the most important weeks for 1Q Earnings.
Charts of the “FAANG Composite” I created (NY FANG index (Bloomberg) + Microsoft MSFT 0.97% ) we see that this group remains under substantial technical pressure given the breakdown from this past January. Absolute charts are now poised to test March lows (which along with QQQ nearing the same level, might provide some initial support).
Relative charts of “FAANG” vs SPX (bottom of the chart below) shows this ratio having plummeted to the lowest levels since Spring 2020. While bounces at any time are likely, this should prove early for this area to bottom given the absolute and relative weakness.
Huge dispersion within this group has taken place in the last couple months, with stocks like AAPL -0.43% holding up in resilient fashion, while NFLX, FB have weakened substantially.
AAPL -0.43% , TSLA 3.60% and MSFT 0.97% are my favorites within “FAANG” while NFLX, FB are the relative laggards. Near-term, these laggards likely underperform and/or fail to bounce as much as others on good earnings, in my view. However, further weakness into mid-to-late May should set up for attractive buying opportunities for many stocks within “FAANG”. Stay tuned.
China’s demand woes are being blamed for the weakness in Commodities, and this likely affects Energy as well as Metals
WTI Crude oil’s severe weakness has come about very quickly in recent days and should lead to additional downside pressure for Oil and for Energy stocks into the month of May.
Charts of VanEck Vectors Oil Services ETF OIH -0.10% , has officially broken the prior uptrend from last December lows. This is a short-term negative development and should result in OIH pulling back to near-term targets at $242, and maximum weakness to $225 before a rally back to highs.
Overall, Monday’s break was a technical negative, and I expect some follow-through in the weeks ahead that should be buyable if/when WTI Crude hits the high $80’s.
Precious Metals weakness should also persist into June before a bounce gets underway
Last week’s Technical reports discussed how Gold and Silver might start to come under pressure given rising real yields, and this seems have begun in earnest in recent days. Gold’s decline should weaken to test and break March lows, on its way to 1825, as a minimum downside target. This level would allow the initial pullback from March 2022 to equal the second in wave equality. This also lines up with a possible Elliott-wave style corrective pattern that shows near-term weakness into May, but then bottoms out and pushes higher.
Silver’s decline has proven more negative in the short run, as the break under $24.04 in front month Silver futures took prices to the lowest levels since February. Overall, a decline down to $21.50 into June should present a chance to buy dips. However, at present, a pullback looks underway in both precious metals along with Base metals and many of the stocks which correlate most closely with these.
Overall, Precious metals will be important to buy on weakness, but this seems to be 5-7 weeks away and will need to be monitored, if/when Gold breaks below $1850. The daily chart of front month Gold futures is shown below which likely pulls back to help these two waves achieve equality.
