Markets intra-day reversal doesn’t take away from technical thinking that a near-term low is likely in place. While SPX failed to join QQQ in its downtrend line breakout per Thursday’s close (and DJIA closed at new lows for the week) some positives are in place that suggest a larger bounce lies right around the corner.
Volatility is back and that likely won’t change heading into one of the most meaningful FOMC meetings this year. It’s uncertain whether Chairman Powell will allow recent weaker than expected PMI data to influence his thinking about the need for further hikes. Implied option volatility for Friday’s SPX trading, however, shows a daily range possibility of 0.75% per the options pricing.
This suggests a possible volatile day, and one that might be rife with whipsaws unless Powell is quite clear and not hesitant about the economy in a reassuring way. SPX and QQQ both retraced all of the early premarket gains in futures, but by end of Thursday’s trading, prices lie near Wednesday’s lows.
DJIA did manage to break down and close at new lows for the week. However, DJIA also lies right near its 50% retracement area, and is thought to be close to bottoming into next week.
Overall, given the momentum improvement off last Friday’s lows, it’s difficult being too negative simply given a 1% negative performance session ahead of a much-anticipated discussion. Momentum and breadth have been trending higher this week, and QQQ’s breakout of the July downtrend was not given back in Thursday’s trading, despite the minor weakness.
Bottom line, Thursday’s reversal wasn’t severe enough to call for a pullback to new monthly lows. Moreover, I’m still expecting that US Equity markets can move higher after Thursday’s reversal, which might allow for a brief move above SPX-4500 before any additional weakness gets underway.
The technical playbook for Friday is as follows: It’s right to consider that both SPX and QQQ might find support near the 1st levels mentioned below. Given that downtrends remain in place for DJIA and SPX, there remains just a fractional level of “wiggle room” for SPX before it touches last week’s 4335 lows.
While the cycle composite shows the first week of September to be important as a possible bottoming period for US Equities, I feel it’s early to turn bearish here after this week’s progress.
If/when some evidence arises of groups like Technology and Industrials breaking their relative uptrends vs. SPX, that would certainly change my opinion to a more cautious stance.
For now, reasons like near-oversold conditions for Equities along with compressed breadth and a big contraction in bullish sentiment are all reasons to suspect lows should materialize over the next 1-2 weeks. This gels with the 80-day cycle and can allow for rallies in September. While the larger intermediate-term path remains constructive, and the recent pullback looks to be nearing support, I find it difficult to be too negative after just a scant amount of selling.
The key areas of possible support and resistance for SPX and QQQ are below:
SPX Support– 4363, 4335, Resistance 4420, 4471
QQQ Support 359, 355, 349, Resistance- 367, 374-5
NVIDIA intra-day weakness doesn’t take away from technical attractiveness
Despite NVDA having pulled back from intra-day strength above $500 on Thursday, prices failed to deteriorate enough to expect a big correction.
Even with a more than $25 dollar+ intra-day pullback between high and low for the day in NVDA, prices remain at/near all-time highs with one-day remaining in the week. At current levels, given early week upward progress before Thursday’s setback, a weekly close at current levels would still represent a new all-time high weekly close for NVDA.
Thus, despite a sharp decline in Thursday’s trading from above $500, the resulting daily and weekly close looks quite bullish.
Upside technical targets lie near $520 in NVDA, and if this level is reached, it would line up with the weekly upper Bollinger Band which should have far more importance.
US Technology still holding up strong in Equal-weighted terms
Technology’s outperformance earlier in the week was given back a bit in Thursday’s trading. However, as this chart shows below of the Invesco Equal-weighted Technology ETF vs. Equal-weighted SPX, Tech remains trending up vs. SPX this year and maintains a relative uptrend.
Thus, while a couple months of sideways consolidation has certainly happened in Technology, this chart makes a fairly bullish case for owning Technology.
Note, this move is not just dominated in large-cap Technology stocks like AAPL. Equal-weighted Technology has enjoyed nearly as much in performance gains as XLK 0.29% .
Overall, until evidence arises of Technology breaking down vs. SPX, one should look to own Technology and simply buy dips. I expect that Tech remains an overweight for 2H 2023.
Furthermore, a drop in interest rates between Late August and next Summer (like what cycles suggest could happen) would likely be quite positive for Technology.
Uranium strength likely shows upside follow-through
One of the more interesting technical breakouts which has happened this week during a time of volatile markets involves Uranium, which has been discussed on and off over the last year.
This week’s movement in the Global X Uranium ETF (URA 0.31% ) has officially broken out above consolidation highs which have guided peaks since late last year.
As this weekly chart shows below, detailing the base building efforts since last Fall in URA, this week’s move above prior consolidation resistance is a positive development.
Overall, I view this upward progress as being quite positive for URA and expect further gains in the months ahead to the high $20’s initially. Base breakouts like URA often represent technically attractive opportunities given the act of moving above resistance levels that have held for six months or longer. In this case, I’m expecting that URA can finally show some follow-through.
Stocks like CCJ 1.06% , Cameco, likely will outperform also if URA makes further upward progress.
