US Equity and Treasury markets likely bottom in the next 1-2 weeks and breaks of current downtrend lines would suggest an initial bottom is in place. At present, insufficient technical evidence is present to suggest that markets have definitely bottomed.
US Equities are nearing areas of a possible low, but require some strength to say with any conviction that lows are already in place.
I can’t rule out a pullback to 4300-30 in SPX, nor 349 in QQQ. However, if this doesn’t happen ahead of Jackson Hole, and Powell’s comments coincide with rates rolling over, or NVDA -0.13% ’s earnings result in Technology jumping higher, than a temporary low very well could be in place.
Factors like SPX nearing daily oversold territory while sentiment has gotten more negative are certainly positives given the broad-based nature of the advance since May.
Additionally, Equal-weighted SPX lies right near key support (RSP 0.96% ) which makes this an attractive risk/reward heading into the end of August.
Despite September being a seasonally weak month similar to August, an oversold bounce looks near which should be far greater than what’s unfolded in the past 24 hours.
Importantly, sectors like Technology and Industrials, not to mention Discretionary, have all pulled back to near critical short-term support on a relative basis vs SPX. Moreover, even sectors like Financials which require more selectivity when investing, are now showing prices nearing short-term support where some near-term stabilization is possible.
Bottom line, SPX first resistance lies at 4440 and needs to be exceeded to have any inkling of a potential low at hand. Additional resistance lies at 4471, near the 50% retracement level of the three-week decline. For QQQ, above 367 on a close likely would have to be trusted as being positive on the short run, but my downside target remains 349.
Important to note that if a rally happens ahead of time cycles forming lows or DeMark indictors reflecting downside exhaustion, or ahead of any kind of capitulation while breadth has contracted but not yet gotten to levels that were present at March lows, then bounces likely would not exceed July peaks before additional selling into September/October.
Thus, it’s difficult to try to pick bottoms in absence of any trend improvement when other factors also don’t reflect that lows are yet in place. However, a trend break in the indices is normally worth following and this time is not any different.
Equal-weight S&P 500 ETF by Invesco (RSP 0.96% ) shows a much different picture than that seen by SPX cash index. The advance into late July failed to break out above February 2023 peaks before retreating.
At present, RSP looks like an appealing risk/reward given price having pulled back to support caused by a combination of former swing highs along with intermediate-term trendline support.
I expect that risk/reward is poor for those attempting to bet on a lot further downside in the short run, as a bounce looks likely into mid-September (at a minimum). At present, whether or not Powell says the right thing at Jackson Hole shouldn’t deter those who expect an upcoming rally. While comments which catch the market off guard might result in some minor selling, I’m confident that technical weakness from now into early September should prove short-lived ahead of a larger rally.
SPX time ratios suggest October might have importance
The following analysis deals with analyzing SPX based on duration of rallies and declines and calculating Fibonacci-based ratios of the prior movement to forecast potential areas of future trend change. While this might sound nonsensical to non-practitioners, this year’s bounce off March lows obeyed a very precise calendar day duration before peaking in late July.
To review, the rally off last October 2022 lows into July 2023 lasted nearly the exact same time in calendar days as last year’s bear market decline (1/3/22-10/13/22), which lasted a bit more than 40 weeks.
Furthermore, the 20-week halfway point from October 2022 lows projected forward arrive at the mid-March lows. (October 2022-March 2023 LOW TO LOW was 20 weeks).
Additionally, the rally (Low to High) from March 2023 into July 31, 2023 peak was also 20 weeks, or 140 calendar days, which was exact (almost to the day) in late July 2023.
Going forward, using purely the time of this most recent rally March lows for forecasting purposes with no other timing tools, it’s natural that a corrective decline from 7/27/23 might approximate a Fibonacci-based ratio of this former rally (like what has happened in the past).
Some days to keep in mind, purely from a time perspective, when a change in trend could occur:
10/9/23- a 50% time retracement of March-July 2023 rally
10/25/23- a 61.8% time retracement of the March-June 2023 rally
12/19/23- a 100% replica in calendar days of the 20-week rally from JULY 31,2023 projected forward
Overall, any of these dates above could take on importance, if/when a rally into September fails and turns back lower. Utilizing DeMark, traditional cycle tools, and momentum divergences are often helpful towards fine-tuning the projected turning point. Stay tuned.
NVDA has slowed, but likely has not yet peaked into Earnings
Without commenting on NVDA -0.13% ’s potential for Artificial intelligence solutions (AI) or any fundamentals with regards to earnings, I felt it would be helpful to frame the technical situation into Wednesday’s (8/23/23) earnings report for NVDA.
NVDA’s recent rally into earnings has proven impressive given that the stock managed to bottom right near key intermediate-term trendline support just above $400.
Many suggested Tuesday’s About-face ahead of earnings was “bearish” . However, the 2.8% decline barely measured up to the +8% rally which was seen Monday 8/21/23.
Tuesday’s minor weakness barely retraced more than 50% of the preceding one-day rally, and has not caused sufficient technical deterioration to expect weakness post earnings.
While momentum has certainly slowed a bit in recent weeks, this hardly justifies sufficient technical weakness to avoid NVDA at a time when the stock (in the short run) peaked out right near its former all-time highs near $480.
Overall, I view this current run-up in the last week as being an impulsive rally that can lead higher. My first upside target above $480 lies at $500.
To have any concern about NVDA’s technical situation, it would require an initial selloff to undercut $440. However, the key support level lies at $400. A test/break of this level would involve a very serious decline which would exceed what the options market has priced in as an implied movement for Wednesday post earnings.
Overall, this remains a star performer within the Semiconductor space. While NVDA has shown some minor negative divergence in momentum on its recent slowdown, price has not broken its uptrend for 2023. That’s the first step towards expecting a selloff of any sort.
Until proper evidence is in place, technicals still appear bullish, and I feel like recent consolidation should be answered with an upside breakout of this recent range, not a downside breakout. Thus, my view is that NVDA likely pushes up to $500 into mid-September, and this represents the first meaningful area of resistance to the stock’s rally in the near-term.
Financials nearing support in the short run
While Financials largely lies in the middle of the pack with regards to sector performance in the last month, this sector has now quickly retraced 50% of its rally from May within the next three weeks.
Financials in Equal-weighted terms has lost -2.86% in the last week, and is lower by -4.45% in the last month, which puts this 4th worst among the 11 major Equal-weighted sectors within SPX.
However, while Exchange stocks, credit card processors and Insurance remain more technically attractive than the Commercial and Regional banks at this time, this pullback is now approaching support.
Certainly some of the Financials are in better technical shape than others. JPM -1.11% , as one example has pulled back to levels right above intermediate-term trendline support, and looks attractive from a risk/reward perspective. Other stocks like Citigroup (C 0.59% ) have declined to the lowest level in more than a year, and looks like a technical laggard compared to others.
Overall, when eyeing RYF, the Invesco Equal-weighted Financials ETF, this has neared an important support level and likely should stabilize into late August and bounce in September.
