US Equity indices have now weakened for the third straight session as Treasury yields have pressed higher; At present, yields are nearing a “Do-or-Die” area of resistance, while Stocks are nearing a similar level of support. Breakouts in yields, however, could postpone a stock market low.
Given Technology’s resilience in September, along with a pick-up in bearish sentiment, it looks right to expect Equities can bottom into the next short-term cycle period which starts on 9/9 into 9/13. Thus, a window for a market bottom might materialize into next week.
Overall, despite some minor weakness for SPX and QQQ since late July, US indices have largely successfully managed to absorb one of the largest periods of Treasury issuance in this short of a period in years.
Momentum and breadth have certainly faltered in the last five weeks while seasonality remains a chief concern for September. However, barring the break of the minor uptrend from mid-August lows, I believe it’s still right to bet on higher prices and that recent weakness will prove to be short-term consolidation only, not the start of a major downturn.
Key support should materialize near the 50-62% retracement ratios of the prior run-up from mid-August. Thus, a price window of support exists from SPX-4410-4440 into next week which is important to hold to expect SPX can stabilize and work higher throughout September.
The alternate scenario is that yields break out above August peaks across various parts of the yield curve and 4400 is broken. This presents a more bearish near-term scenario which should lead to a minor new low near 4300-30 before a bottom takes hold. However, this is an alternate scenario at this time.
As seen below, SPX managed to hold its 50% retracement area along with its upsloping 10-day moving average. For now, this uptrend is intact and has not been broken. If this changes, then I’ll certainly address in Flash Insights and also in this report.
Technology has proven to be resilient since mid-August
Technology remains an important piece of the market puzzle given its weighting within SPX as well as QQQ.
As this relative chart shows of Equal-weighted Technology ETF by Invesco (RSPT) vs. Equal-weighted SPX (RSP), Technology( Tech) remain trending higher since late 2022 in a pattern of rising highs and rising lows.
Its brief 12 week period of underperformance largely marked the period where the market broadened out substantially, and many sectors outperformed Tech.
Tech’s relative chart vs the S&P is now nearing a larger base breakout vs RSP and challenging levels that have been significant resistance since 2020.
Breakouts of this level would certainly make a bearish stance difficult. While certain former leaders like AAPL and NVDA have weakened in the short run, there has been no meaningful evidence of Tech peaking out. This weakness promptly began to reverse back higher again in late August, and seems to be a clear technical positive that many are overlooking.
AAPL also nearing important near-term support
Interestingly enough, AAPL peaked right near the $197 target that was discussed back in May/June as a possible of serious resistance.
Time-wise, AAPL’s mid-August low occurred right near a 61.8% time-based retracement of the former one-year decline from 1/3/22 into 1/3/23. AAPL will have another important area for a possible time based turn as of 10/14-10/18 and also near 11/12-11/15.
(For those wondering, these line up with a 100% time projection of the former 3/24/20-1/3/22 rally along with a Fibonacci retracement of the most recent 1/3/23-7/31/23 rally.)
As daily charts show below, AAPL’s bounce from mid-August held right near the prior open-gap from early August before rolling over this week.
It’s thought that $178.50-$181 should be important to hold on this current pullback, or just fractionally below current levels. If this were to break in the days/weeks ahead, this would cast doubt on the broader markets’ ability to stabilize and rally given AAPL’s percentages within the market and its influence on Technology. However, as has been discussed, Tech has held up quite well. Therefore, I have no technical reason not to find AAPL attractive on minor weakness which gets down to $181 or below 180 to 178.50, which could be important support.
If 178.50 is broken, this would suggest a more meaningful downdraft. However, at this time, this is not expected.
Airlines have fallen sharply since mid-July but are now approaching trading lows
JETS, the Global Jets ETF, has pulled back to test a larger uptrend since October 2022 lows. Technically speaking, I believe this will be broken by a small amount into next week.
However, Airlines as a group look close to bottoming Technically based on a combination of near-term oversold conditions, structural support, along with DeMark exhaustion approaching on multiple timeframes.
JETS has 50 stocks that correlate well to Airline travel, and many of the larger carriers trade in this index. Near-term, JETS looks likely to trade down to 17.75-18.25. However, this looks to be attractive support to consider the Airlines after nearly two months of weakness.
While rising oil prices could represent an intermediate-term fundamental concern to this Airline group for the carriers who have not hedged their exposure, my own thinking is that Crude is getting closer to seasonal peaks and might stall out in the low $90’s, not too far above current levels. Thus, considering the Airlines over the next 1-2 weeks on a bit more weakness makes sense.
My favorite technical names within the Airline space are: SKYW, ERJ, and RYAAY.
However, my work suggests that the following areas should be important as possible technical support on further weakness in this group into next week. While it’s always difficult to own/buy something which has reached new 52-week and/or multi-month lows, these following stocks will have appeal as counter-trend trades at the following levels:
Following levels are support for the Airlines
DAL – $40-$41
LUV- $28.50
AAL- $13.50
UAL- $$46
ALK- $$39
AZUL- $7.50
RYAAY- $$95
ERJ- $14.50-$15
SKYW – $41.50-$43
The JETS etf below likely could attempt to stabilize upon nearing the flat red line shown below which intersects several former lows.
