SPX Breakout, or Fakeout?

SPX and DJIA officially joined NASDAQ back at new highs, which is certainly a constructive move for these indices.  However, it will be the act of Equal-weighted S&P and Value Line, not to mention DJ Transportation Avg also rejoining that will put the stock market in a better technical position for 1^st Quarter.   Technology has managed to carry market performance despite a rally in both US Dollar and Treasury yields while breadth has waned in recent weeks.  Overall, it’s difficult to fight this move, but more conviction will naturally arise if all the laggard sectors can begin to claw back and participate, vs. Technology peaking.  The key area in question from a time perspective is 1/27-1/29/24.

Bottom line, it’s still not wrong to say 2024 has been a choppy time for equities, despite QQQ having made a beeline back to new high territory.  Technology remains in very good shape technically and there’s a reason why this sector was a technical overweight for me, for 2024. 

Now the market has two options:  Either resume a broad-based rally back to highs in the sectors that have underperformed dramatically to start the year.  Conversely, Technology would peak from overbought levels as rates push higher.

At present, it’s difficult to ever suggest selling into a move back to new all-time highs technically.   The negative divergence in momentum that was present over the last few weeks along with bullish sentiment were still quite important and normally matter.  Moreover, the act of SPX names above 20-day moving average pulling back from 90% to under 30% in two weeks’ time is normally something to pay attention to.

At present, this overthrow back to new highs requires breadth to start picking up quickly to confirm this move. This larger trend channel connecting former highs intersects near 5000 and this will clearly be a difficult level to immediately exceed.   At present, it’s wise to keep a close eye on both Financials and also Healthcare as the #2 and #3 sectors by market capitalization within SPX behind Technology.  The next couple weeks should provide some clues in this regard.

S&P 500

Equal-weighted S&P 500 (RSP 0.75% ) has some work to do

Given that SPX is now back at new highs, it’s important to look at Value Line Average along with Equal-weighted S&P 500 ETF to see whether these are also back at new all-time highs.

Given the damage that occurred in sectors like Equal-weighted Financials, Discretionary and Healthcare over the last couple of weeks leading up to 1/18 and 1/19, it’s essential to see these sectors come back quickly.

There could be a rally into 1/27-1/29 which would help the month of January finish on a positive note, along with lining up with a key three-month cycle date from low to high.  However, I suspect the next month likely won’t be as easy as the past has been.

Bottom line, I’m perfectly willing to think that S&P can proceed to 5,000.  However, I feel like it’s tough buying into a move back to new highs right away until the broader market can demonstrate that it’s also participating.  RSP breaking out would help to accomplish this goal.

S&P 500 Equal-weight (RSP 0.75% )

Super Micro Computer (SMCI) rally has achieved its technical breakout… and then some

Given that this stock was just added as a Super SMID Granny Shot name this past Wednesday, I felt it important to address Friday’s breakout (1/19/24) which officially exceeded prior peaks from last August in very dramatic fashion during Friday’s session.

This has occurred on the heaviest volume reading of all time for this stock, and its 35% gains in one session give confidence that additional upward progress is quite likely in the weeks and months to come.

Sudden overbought readings on huge volume gains normally are difficult to chase technically.  However, gains should take this up to $500 and potentially to $625-$650 sometime this year.  Technically speaking, I expect any mild pullback should provide a better risk/reward opportunity. 

Looking at just a 38.2% retracement of its rally from 1/17 lows produces Fibonacci-related support targets near $383.  Additional areas of interest lie at $368.  Overall, any act of consolidating gains back under $390 would generate technical interest for what I believe should be an above-average rally in the months ahead.

Super Micro Computer (SMCI 2.64% )

China nearing October 2023 lows could have importance

China’s dramatic underperformance has not resulted in much investor interest, and sentiment-wise, it seems like many have given up on expecting a turnaround in China.

Interestingly enough, there could soon be an opportunity as FXI 0.66%  has now neared last October 2023 lows after losing more than 20% just since mid-November of last year.

Four factors make it seem like lows could be close:

1. Daily charts show some positive momentum divergence as RSI has not followed price down to below $22 in recent weeks
2. Prior lows look important as the first major technical area of possible support after a lengthy decline
3. Sentiment seems quite negative following China’s dramatic underperformance
4. DeMark indicators show a rare confluence of multiple timeframes of counter-trend exhaustion

Overall, I sense that October lows likely will be tested from last year which will involve a move from $21.68 down to $20.87 early next week.  However, it’s important to give Chinese Equities a bit more consideration as to an area that has the potential to turn back higher this year.  Given these four factors above, the odds look far better now than a few months ago.

Technically, for those attempting to consider any investment attractive which lies at 52-week lows, this requires a tremendous amount of patience, along with a high risk tolerance.  In my experience, it’s normally wise to await some evidence of a “flushing out’ in price followed by a meaningful break of the existing downtrend before having too much conviction. 

However, for those investors intent on buying into ETF’s which are hitting new multi-month low territory, there could be an opportunity approaching in the next 1-2 weeks, and it looks right to pay attention.

China Large-Cap (FXI 0.66% )