The near-term could prove choppy for US Equities heading into this week’s FOMC meeting. While there was some definite evidence late last week of ^SPX 0.24% , QQQ 0.36% stalling out as Technology reached short-term resistance, one can’t rule out a challenge of last Friday’s highs which might allow for a push to 4025-50. This would fit with intraday wave counts, but ultimately prove to be sellable for traders over the next few days on strength. Overall, we’ve seen some definite evidence of near-term strengthening in many of the Defensive groups like Staples and Utilities lately, and this might continue on a 1-2 week basis, but do not expect this to prove ultimately all that meaningful. It’s anticipated that markets likely have more downside than upside on a 1-2 week basis with 3938 and 3900 being key support, while 4012, then 4025 are key resistance.
Growth pullback into August should prove temporary and buyable given recent progress vs. Value
Recent Technology weakness notwithstanding, we’ve seen some very good movement out of Growth since it bottomed vs Value back in May, over two months ago.
Ratios of the IShares S&P Growth ETF (IVW 0.10% – Growth) relative to IShares S&P Value ETF (IVE -0.17% – Value) shows last month’s breakout of the downtrend from late 2021. That’s a constructive development that should lead to further intermediate-term strengthening into late September/October.
However, near-term, paradoxically, this week’s mean reversion out of Technology and strengthening in Energy, could show the opposite. Overall, I expect that Energy strength this week might be sellable, while Technology weakness likely following FOMC and the Technology earnings this week should be something in which to consider buying dips.
Technically, this IVW 0.10% vs. IVE -0.17% ratio has broken downtrends going back since last November. This constructive breakout has resulted in momentum gauges like weekly MACD to make a bullish crossover above its signal line. It’s thought that even if Technology earnings come in sub-par, this recent bullish breakout of Growth vs. Value (Mostly Large-Cap) bodes well for this to strengthen further into Fall 2022. Overall, buying dips in Growth looks prudent.
Utilities starting to show evidence of short-term breakout, yet relatively this remains a laggard
Following a very sharp pullback in the month of June, Utilities look to be on the comeback trail in the short run. Movement back over this minor downtrend near last Friday’s highs ($69.70) should allow this group to strengthen in absolute terms, projecting up to $73-$74 before much slowdown.
Relative charts show the breakdown in June in Utilities having a negative effect on this sector’s attractiveness vs the SPX. Last month’s breakdown constituted a near six-month relative breakdown.
Thus, while absolute strength looks likely in the days/weeks to come in Utilities, I’m skeptical that this would represent strong enough of a technical move to turn this sector back higher in relative terms in thinking this would outperform for any meaningful amount of time.
Attractive Utilities to consider include NextEra Energy (NEE 0.28% ) and Atmos Energy (ATO 0.10% ), both of which are leaders within the space and should outperform.
Energy making short-term upside follow-through, but gains unlikely to extend back to highs right away
Energy has certainly stabilized a bit in the short run, and I discussed last week why the road to the mid-to-high $80’s likely would not occur in a straight line.
Near-term, this Monday advance over prior peaks from last week certainly looks like a positive technically and should allow for further gains up to XLE 1.15% 76, or a max to $79 before this starts to backtrack into August.
WTI Crude has not shown the same degree of strength as many within the Energy sector. Technically, I had expected a push higher to $107 or even $110 but the last couple weeks haven’t shown sufficient strength to expect that the worst is over for WTI Crude.
Overall, it will pay to be tactical in Energy in the weeks to come. Near-term strength into late July/early August likely will initially be something that stalls and reverses. Meanwhile, weakening in WTI Crude back under $93 should have little to no real support until the high $80’s.
