Key Takeaways

  • Tuesday’s NASDAQ pullback has violated Feb/March lows, while SPX is at these levels, and DJIA remains a relative outperformer, trading ~3% above as of 4/26 close.
  • Microsoft and Tesla analyzed technically and key support, resistance revealed.
  • Equal-weighted SPX and NASDAQ both showing strength vs Cap-weighted.
Equal-weighted SPX hits highest vs SPX in over a year
Equal-weighted SPX hits highest vs SPX in over a year

The selloff has proven difficult to fade, even when a few factors suggested that markets might be near short-term support.   SPX is now at March lows, and technically has made the lowest daily close in over a month.  NASDAQ finished Tuesday at the lowest close since December 2020, while DJIA remains nearly 1000 points above March’s lows, or 3% above.   Overall, three factors suggest near-term that temporary support is near.   First, counter-trend exhaustion signals on  QQQ -0.21%  and  SPY 0.02%  along with  SOX on a few intraday timeframes based on DeMark indicators suggest these might be ready to bounce.  Second, SPX and MSFT are right near prior lows and have not technically broken down.  Third, Elliott-wave patterns seem to suggest a possible brief reprieve in the selling, which could carry SPX back to near 4350 from 4140.75 before weakness reasserts itself.  Overall, trends and momentum are bearish, but not oversold which is an important point.   

Equal-weighted SPX hits highest vs SPX in over a year
Source: Trading View

Regardless of whether US Equity indices can manage a brief bounce in the days ahead, this should prove temporary and something to expect reverses back down to undercut February lows in the weeks to come.  Cycles remain negatively sloped and should have a downward bias in May, and both Equity Put/call ratio along with VIX have not reached extremes seen back in mid-March, not to mention late January.  Overall, this looks to be an opportune area from a trading perspective to attempt to play a brief bounce.  However, for most investors, it’s very difficult to make the case for a long-lasting bottom here.  A defensive bias remains preferred, and it’s right to view any bounce back to 4325-60 as serious resistance that turns back lower.

Equal-weighted SPX breaking back out vs Cap-weighted SPX  

Don’t look now, but the Equal-weighted SPX relative to the Cap-weighted (regular) SPX has just moved back to new yearly highs.   This goes a long way toward showing that recent market weakness has been more Technology focused than other sectors, and the “Generals” are finally starting to show weakness to join the broader market.   As many knew, Equal-weighted Market Averages like the Value-Line Geometric Average peaked out in 2021 in the late Spring, and most stocks struggled to keep pace with the SPX which showed pronounced Tech outperformance into January 2022 before peaking.

Thus, while some investors might have correctly surmised that the high-growth  ARKK 0.15%  might weaken given rates pushing higher in recent months, it’s really been the recent relative weakness in Large-cap names like  GOOGL -0.25% ,  MSFT -0.33%   AAPL -1.12%  which comprise a heavy percentage within SPX, QQQ that have caused the Equal-weighted SPX to begin to push higher relative to the regular SPX. 

Equal-weighted SPX hits highest vs SPX in over a year
Source:  Bloomberg

This looks to continue over the next couple of months given this breakout, though we should be on the lookout for stalling into late May/June.  Particularly if interest rates start to peak, and roll over in the next 4-6 weeks, this would be seen as a likely benefit to Technology which had been so adversely affected by the Rate rise.  Overall, this bullish breakout in Equal-weighted SPX looks to continue vs SPX in the weeks ahead and is another way to view weakness in the Large-Cap Tech stocks which have dominated the US stock market in recent years.  I expect this likely continues at least into late May before possibly reversing course as rates start to drop.

Tesla weakening down to near-term key support

Technically speaking, TSLA’s 11% decline in Tuesday trading has brought shares down to pivotal “make-or-break” support near the 61.8% Fibonacci retracement area of its bounce from late February which lies near 872.  This is TSLA’s worst one-day loss in nearly three months, and I expect that Tuesday’s decline likely has jumpstarted a move down to eventually test March lows before this can stabilize.  Structurally, the chart below details TSLA’s largely range-bound motion since last October, which looks eerily similar to the same pattern being seen in stocks like AAPL.

Overall, this isn’t an unhealthy pattern in the bigger scheme of things.  Despite the April weakness, TSLA remains in the upper quadrant of its 2022-2021 advance, and prices require a violation of $700 to have real concern regarding a larger technical breakdown.

Bottom line, any break of 872 should lead to $700 sometime in the next 1-2 months, with very meaningful support at 624-641, a level which represents a 50% absolute and relative retracement of TSLA’s 2019-2021 rally.  

Equal-weighted SPX hits highest vs SPX in over a year
Source:  Trading View

To have confidence this is starting to turn back up toward highs, prices need to eclipse $974, which looks to take some time, and might be premature at present.

Microsoft down to support on Tuesday. Minor bounce possible

One of the key stocks within QQQ and SPX has now arrived at important short-term support, which might offer some stabilization and a possible bounce in the days ahead.   MSFT -0.33%  accounts for slightly more than 10% of the QQQ at current levels while being more than 6% within SPY.    At Tuesday’s closing prices of $270.22, MSFT lies right at March intra-day lows ($270.00) that will be critical to hold on a closing basis between Wednesday-Friday.

While I expect MSFT very well could break under 270 in May, its recent pullback looks to have created an attractive tactical area to take a stab on the long side, from a risk/reward perspective, for those that wish to attempt to buy dips.  I discussed QQQ in yesterday’s report and video, and MSFT looks similar given its pullback to levels right near former lows.  I suspect a bounce to 288 is possible and potentially even to $293 (less likely) before 270 is broken in May

Intermediate-term targets on a break of $270 wouldn’t materialize until near $241, which lies near the 50% retracement of its 2020-2021 rally, as well as representing an alternative retracement of the first “Wave” lower from last November.

Equal-weighted SPX hits highest vs SPX in over a year
Source: Trading View
Disclosures (show)

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