Key Takeaways
  • SPX pullback has neared important short-term trading support at 1 month uptrend.
  • Crude oil’s severe selloff has neared July lows; while a bounce could happen, WTI Crude’s downward momentum should result in this pulling back to the mid-80’s.
  • Software’s breakdown vs. Technology translates into upcoming underperformance in July.
Software likely underperforms the rest of Tech in July

The immediate pattern in SPX remains choppy and resembles a fourth-wave triangle pattern which requires one final pullback to new lows before bottoming.  After Tuesday’s decline, which brought prices right down to key near-term one-month uptrend line support, it’s difficult to make the case for an imminent breakdown.   SPX requires a move down under 3738 to suggest a retest of June lows is imminent.  Until that happens, one cannot rule out a bounce post Wednesday’s CPI number, which might reach 3980-4045 temporarily before rolling back over to new lows into late July.   As seen below, these triangle patterns as part of existing downtrends can prove choppy as has been seen over the last month.   Yet, an ultimate break back down under 3636 is probable into late July before US indices start to bottom out and rally into September.

Software likely underperforms the rest of Tech in July
Source: Bloomberg

QQQ formation vs SPY should move to new lows into late July before bottoming  

One chart that sheds some meaningful light as to the potential direction of QQQ and of the broader Equity market happens when viewing the relative chart of QQQ vs SPY.  As shown below, this has bounced over the last couple months, but has done so in a very overlapping, choppy manner. This is insightful as it shows us that QQQ has likely not yet officially bottomed vs. SPY when viewed from Elliott-wave style analysis. (Overlapping choppy waves are typically counter-trend moves, and the resolution typically comes in a break toward the direction of the original trend… in this case, down).

Interestingly enough, DeMark indicators on ratio charts on a weekly basis would benefit from another breakdown to challenge new lows into the end of July, as this would officially allow TD Sequential “13 Countdown” signals on weekly charts to line up with TD Combo signals, which produced and confirmed buy signals on QQQ vs SPY nearly two months ago.

Thus, it’s expected that a pullback starts to get underway in QQQ vs. SPY, which could allow for a “final” move down to new lows into late July.  Furthermore, this would satisfy DeMark counts, as well as wave structure before QQQ bottoms vs. SPY and turns up sharply into September.  At present, it’s thought that the Software deterioration of late likely has jump- started a decline in Technology in the short run, and this should accelerate if/when Treasury yields start to turn back higher (which looks likely following Tuesday’s dismal auction results).
Bottom line, QQQ likely could bottom vs. SPY in relative terms by the end of July, and any evidence of breakdown in this ratio chart would allow for some upcoming opportunity to buy Technology into the July FOMC meeting. 

Software likely underperforms the rest of Tech in July
Source:  Symbolik

WTI Crude has neared trading support; yet a larger decline into late July to $92 at a minimum, if not the mid-$80’s, looks increasingly likely into late-July before this bottoms

Given the violent pullback in WTI Crude Tuesday, a few points are worth mentioning:

-Near-term trends remain sharply bearish and bounces are sellable for trading purposes for an upcoming challenge/break of April 2022 lows.

-Momentum is not oversold on weekly charts measuring waves, which points to possible confluence down near $92 at a minimum; However, violations of $92 have little support until the mid-$80’s for WTI Crude.

-This ongoing pullback from June does not signal a larger peak for Crude, but merely a one-to-two-month correction which should signal a buying opportunity for Energy potentially by the July FOMC meeting.

This close-up of WTI Crude shows a complete round-trip from early July back down to challenge these lows. While it’s possible to hold in the near term, any break of $95 would lead down to $92.  Conversely, rallies back to $105-$108 would represent a very low risk selling opportunity.

Software likely underperforms the rest of Tech in July
Source:  Trading View

Software breaking down relatively vs. SPX means this part of Technology should lag badly over the next 2-3 weeks

Interestingly enough, Software has begun to deteriorate badly in recent days, with losses in stocks like  ADBE -0.11% ,  CRM -0.07% ,  FTNT 1.55% ,  MSFT -0.33% ,  TYL,  INTU 0.19% , and  NOW 0.45%  all surpassing 2% on the downside.   NOW 0.45%  recorded a one-day decline of nearly 13% on Tuesday.

This has negatively affected the relative chart of  IGV -0.14% , the iShares Tech-Expanded Software ETF vs. the broader  XLK -0.15% , the S&P Sector SPDR Technology ETF.

As shown below, ratio charts of  IGV -0.14%  vs  XLK -0.15%  have just violated two-month uptrend line support.  This puts the Software group in a very weak position, and technically I expect this to lag other parts of Technology over the next three weeks of July.

Movement back down to lows would help to generate counter-trend buy signals potentially on Software vs. broader Technology, making buying dips prudent in the weeks to come.

Software likely underperforms the rest of Tech in July
Source: Symbolik
Disclosures (show)

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