US Equity indices approaching support after four down days
- SPX minor weakness really hasn’t done much damage. Upside resistance is 4120
- Energy sector’s minor lagging should be nearly complete as WTI Crude bottoms out
- Outperformance from Autos and Semiconductors likely will mean revert in December
US equity markets remain trending lower in the short run, but are close to near-term support which should materialize between 12/21-12/23 at marginally lower levels. While daily momentum has not yet reached traditional oversold levels per Relative strength index (RSI), we’ve begun to see RSI show positive divergence on two-hour charts of QQQ and SPX. Furthermore, the percentage of stocks above their 20-day moving average is nearing Single digit territory, which normally provides relief for longs. Overall, I don’t expect markets to go down much further in December, and risk/reward for trading shorts looks sub-par with SPX not far above targets at 3725. This might materialize at 3775-3800 before allowing for a minor bounce, and then retest into Wednesday-Friday. However, I’m fully expecting a bounce next week into year-end, regardless if it proves temporary. Overall, it remains important to pay close attention to AAPL and Treasuries, both which have begun to turn back lower (Yields bouncing).
Treasury yields look to be turning higher for a bounce
As discussed, TNX and TYX both look to be turning back higher, which could directly result in Technology underperformance continuing a bit longer.
Interestingly enough, Technology’s underperformance occurred most recently throughout November into December, despite the drop in long-term Treasury yields. Now, yields look to have bottomed temporarily and are pushing back higher, which is directly coinciding with underperformance in Technology.
In the short run, I believe that TNX has carved out five waves lower and has begun a three-wave bounce. Upside targets lie at 3.73-3.77%, while above that would lead temporarily to 3.87%.
Overall, there is no guarantee that yields need to move directly back to test Fall 2022 highs, and the Elliott count suggests that this probably morphs into an ABC type correction with the B-wave bounce underway before additional pullbacks in Yields occur into early January.
Near-term, meaning the next 3-5 trading days, betting on a further bounce in long-term Treasury yields looks correct, technically speaking, but should be right to sell into (Meaning buying Treasuries expecting yields to roll back over, likely by early next week).
AAPL break of $134 is a negative, setting up for a test of June lows
Technically, the breakdown of AAPL under $134 represents the lowest close for Apple stock since June 2022. I had mentioned $134 as being important and believe that Monday’s weakness sets the stage for additional weakness into 2023.
However, in the short run, it looks possible that June lows near $129 should hold losses before attempting a minor bounce into January. Aside from $134, this $129 level looks to be the next most important area of support for AAPL over the last year.
I expect that Technology likely remains weak into early next year. However, AAPL could find support around $3 dollars lower near $129 before stabilizing.
Bounces in AAPL won’t likely move back above December highs just under $152 before weakening further, and it’s expected that $129 is broken into 2023 before AAPL can truly find a meaningful bottom.
Thus, Technology likely should underperform given AAPL’s support violation given its size among SPX, QQQ and many indices. However, when AAPL gets down to more meaningful technical targets next year, one can have greater conviction about US equity markets being closer to a meaningful low.
Two areas stand out as being important for AAPL: first, $123-$124.60. The second lies at $116-$118, the latter boundary representing a 50% retracement of the entire rally up from 2020 and a very major area of support for AAPL. Despite the fact that this lies $10% lower, I anticipate this being a very good area to buy dips at a time when most will be avoiding given the strength of the downtrend.
Occidental Petroleum (OXY0.75% ) has broken listed support. However, holding longs makes sense with the stock near trendline support
A few of my UPTICKS longs have violated support this past week, and I’ll be addressing these one-by-one in these pages in the days to come.
Occidental Petroleum is one such name (OXY0.75% ) which just undercut $62.70 support as of Monday’s 12/19 close. Given that longer-term uptrend line support lies marginally beneath current levels, and momentum is nearly oversold, I like holding OXY0.75% , and would not suggest that a breakdown in this stock should happen between now and year-end.
Support targets are being adjusted to $59, and given my thoughts on Crude nearing meaningful lows, I expect this pullback to stabilize and turn back higher into January 2023.
Overall, this pattern remains choppy and has been so for most of 2022. However, from a risk/reward standpoint, it looks correct to not abandon this stock as it’s approaching meaningful support, which will be adjusted.
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