SPX, DJIA and NASDAQ remain largely range-bound near-term as part of their uptrend from 3/13. This sideways “grind” in prices isn’t necessarily bearish; However, a move back above QQQ-314 and SPX 4040 will be necessary to help jump-start the next leg of the rally.
While the rally seemed broad-based, with all sectors positive on the day and Energy, Materials and Financials all higher by more than 1%, there were continued fears about a potential slowdown in Technology given its recent underperformance in the past week.
As QQQ 0.36% charts show below, this stalling out certainly does not represent much in the way of a negative technical formation. Momentum indicators are positive and not overbought. At present, QQQ is more bullish than either SPX or DJIA.
Any move back over QQQ-314 would likely lead prices up to $335. Downside support lies at $302 and until/unless this area is breached, trends and momentum for QQQ remain positive.
Energy and Healthcare have both shown impressive stabilization and outperformance lately, which looks important and bullish. Financials to their credit, have engineered a sharp two-day bounce, which makes this sector a bit more positive towards thinking more gains might be in store.
As mentioned last week, the whole key for Equities will be to see other sectors start to rally to join the strength in Technology, or at least show sufficient strength to buffer the market if Technology starts to turn lower. At present, there’s not much proof of either.
However, SPX enters the bullish month of April in five days. Given the ongoing resilience at a time when most investors are expecting stock indices to fall, it’s worth watching for any evidence of QQQ and SPX breakouts which might make this scenario less likely. Stalling out, thus far, has not led to any real directional change.
Crude oil entering its best stretch of the year
Monday’s sharp gains in WTI Crude likely signal the start of its rally into late 2Q, and seasonal factors support the idea of a rally over the next couple months.
Outside of the bullish cycle composite which I showed last week, the monthly returns for Crude show prices to be nearing the best consecutive three-month stretch of the year.
Looking at both a 5-year and 10-year period of returns for Crude and for XLE -0.04% , April-June seems quite positive in both.
This snapshot below highlights a 5-year average return for Crude, with April higher by 3.14% on average from 2018-2022. May’s average gains were bolstered by 2020’s outsized 88% gains. Even when removing this outlier year, however, Crude still was higher in five of the prior nine years.
June has proven to be more positive for the underlying commodity than the XLE performance, but over a 5-year span, June averages gains of +6.71% for Crude.
DeMark tools suggest Energy could reverse higher vs. Technology and outperform
Interestingly enough, the relative chart of Energy vs. Technology looks primed to turn higher following four straight months of underperformance.
Counter-trend indicators created by Tom DeMark such as TD Sequential have now appeared on weekly charts of Invesco’s Equal-weighted Energy ETF RYE vs. Invesco’s Equal-weighted Technology ETF, RYT.
This hasn’t been officially confirmed yet, and will depend upon a weekly close finishing higher than the close from four weeks prior. (This would help to register “Bar 1” of a new TD Sell Setup)
I had discussed that Crude regaining the area of its prior breakdown, (which lies near $74.50, as being important and positive) This has not yet occurred but Monday’s sharp Energy gains look quite constructive and could lead this to happen in the days to come.
Overall, given the factors of bullish seasonality, positive cycle composite projections, and near-term oversold conditions in many Energy names, seeing DeMark “13 Countdown buys” helps to add to the conviction about Energy being an attractive counter-trend long to consider.
The ratio chart of RYE vs RYT is shown below. The prior “13 Countdown” signal which occurred on a weekly basis happened back in 2020 and proved quite successful. Bottom line, if this ratio chart breaks its downtrend from last November and confirms this weekly buy signal, I expect this would lead to far greater strength out of Energy.
Consumer Staples starting to strengthen
While most investors have a sharp eye on Technology and wondering if its recent slowdown means that it’s peaking, it’s important to highlight that the Consumer Staples sector has just exceeded its downtrend since last December’s peak.
The daily chart of Invesco’s Equal-weighted Staples ETF, RHS, has surpassed $166.50 which signals a possible period of outperformance for the Staples sector.
Stocks of companies like HSY -0.95% , SJM -0.35% , LW -0.92% , WMT 1.12% , PM -0.85% , SYY -0.09% , ADM -0.29% , and TSN -1.35% were all higher by more than 1% in Monday’s session.
While the relative charts of Staples rebounded vs. the SPX over the last month, the intermediate-term picture still looks a bit suspect.
Overall, it’s always important when the Defensives start to strengthen and occasionally, this is an important market “tell” for periods of risk-off behavior.
