SOX down to technical support ahead of NVDA’s AI Event

Catch me on CNBC Squawk Box Tuesday morning  3/19 at 8:50 am. EST discussing NVDA and market technical.

I continue to see the US stock market as being attractive, technically speaking, and do not feel sufficient risk is there to warrant a selloff at this time. While price action has been a bit more subdued in recent weeks following momentum gauges having gotten overbought, there remain precious little other evidence with regards to frothy speculation to excessive valuation measures that would warrant a major selloff.  Rallies up to SPX-5250-5300 look possible ahead of a possible late March pullback into April.  Both Treasury yields and US Dollar could be prone to trend reversal following this week’s FOMC meeting.

The focus has turned to Semiconductors heading into NVDA’s Artificial Intelligence (AI) event this week which coupled with FOMC and BOJ meetings and a possible Government shutdown, makes this recent uptrend worth watching carefully for evidence of any turbulence.

Stock prices have slowed a bit in recent weeks, but have not shown any evidence of technical deterioration.  Interestingly enough, Equal-weighted Technology is lower over the last one-month period, in Equal-weighted terms (Invesco’s RSPT 0.87% ) while most of the last month’s outperformance has come from Energy and Materials, trouncing all other major sectors with returns of 8.00 and 7.00% respectively (which more than doubles the 3^rd place (out of 11) finisher, Consumer Staples)

As seen in the daily SOX chart below, recent consolidation in Semiconductor stock prices (as gauged by Philadelphia Semiconductor Index price movement) has not caused any damage in short-term uptrends into this NVDA event.

Technically speaking, until/unless SOX undercuts 4600, I’m inclined to view this pullback as a minor three-wave corrective decline which should revisit highs over the next couple weeks.  (Thus far, this move lower from early March has played out as a three-wave decline.  If/when any evidence of a five-wave decline is clear over the next few weeks, one would be forced to make the case for a potential period of further consolidation into April, which would follow a bounce in the last week of March.)

At present, trends remain bullish technically despite some rolling over in momentum in the last couple weeks brought about by minor weakness.  Technically speaking, it’s difficult to view this all that seriously given no violation of the current uptrend. 

Bottom line, I am inclined to expect NVDA, and many other Semiconductor names can still head higher into late March.

SOX Semiconductor Index

Semiconductor performance relative to Equal-weighted Technology has begun to stall, but yet no evidence of trend damage

Relative charts of SOXX (Ishares Semiconductor ETF) vs. Equal-weighted Technology ETF (RSPT 0.87% ) have begun to stall a bit following the recent parabolic uptrend.

Symbolik weekly charts show a TD Combo “13 Exhaustion” signal on the ratio of SOXX to RSPT which might signal the possibility of upcoming consolidation in Semiconductor shares (when confirmed)

Note, at prior peaks in both early and late 2021, similar signals happened on ratio charts of “Semis” to Equal-weighted “Tech”. 

However, this signal requires a weekly close under the close from four weeks prior, for confirmation which has not occurred. 

I suspect that barring any confirmed “sell signal”, it’s right to still bet that the strong momentum from early 2024 can continue, and lift Semiconductors higher as NVDA’s recent consolidation fails to lead to a larger selloff at this time. 

Overall, more proof is needed to validate the bears’ thinking of possible Semiconductor share weakness, along with that of NVDA, neither which has occurred yet to take this pullback seriously from a technical perspective.

SOXX / RSPT

Technology hasn’t shown signs of peaking, despite its sideways grind in recent weeks

It’s proper to mention that Technology has been down over the last month, on an Equal-weighted basis, despite the mildly positive performance of XLK 1.09% .    Despite NVDA contributing nearly 43% of this year’s price rise in NASDAQ 100, despite being just a 3.8% index weight, Technology has begun to churn sideways in the last few weeks, which is illustrated by the hourly chart below of the S&P Information Technology Index. (S5INFT- Bloomberg)

Technically speaking, this isn’t a bearish development, as frequently consolidation patterns in many stocks are often resolved higher, not lower, despite the waning in momentum in recent weeks.

Until/unless there is a violation of this support trendline below (shown in white) and prices break down to new lows for March, I suspect that S5INFT likely pushes back up to 3900-3950 area before any stalling out into late March.  Thus, the area of concern in the near-term wouldn’t come into play until around 3700, and seems unlikely right away.

Technology Sector Index

AAPL has bounced along with TSLA in recent days.   This is what needs to happen before thinking AAPL can move back to new highs

AAPL has been a stubborn underperformer in recent months, declining from 12/14/23 (which proved to be a false breakout back to new all-time highs) down nearly 30 points to early March 2024 as AAPL pulled back to within $3 of testing last October’s low close from 10/26/23- $166.89)

The news of AAPL’s partnership with GOOGL 10.17%  to potentially add Gemini to its Iphone sent shares of both GOOGL and AAPL higher over the past couple trading sessions.

Overall, it’s difficult to speculate on whether this will become a “done deal” or whether it will get hung up by the Department of Justice.  Technically speaking, however, I view it as a distinct positive that AAPL failed to decline below $165 despite having largely lagged performance in Technology since last Summer.  (In other words, the success of AAPL having gained nearly 60% between January to July of 2023 and having held up in the upper quartile of this range is seen as quite bullish technically)

Furthermore, AAPL’s gains on both last Friday, 3/15/24 and also Monday 3/18/24, occurred on much heavier volume than had been seen in recent weeks.

However, more needs to happen to argue that AAPL has officially bottomed.  As shown below, a move back over $180 would structurally make the pattern from December 2023 a simple “ABC” corrective pattern (in all likelihood) that should lead back to new all-time highs.

I suspect this does happen. However, it’s difficult yet to state with confidence technically that this recent downdraft is complete.  AAPL could very well pullback a bit more to test March lows before a more meaningful low is in place.

Overall, the act of regaining $180 in AAPL would be thought to be short-term bullish for both SPX and QQQ given AAPL’s percentage within these indices.  The fact that both have been quite positive in recent months despite AAPL’s underperformance speaks to the extent of the broadening process of the US stock market at work which has successfully held indices afloat despite AAPL being a laggard. 

Bottom line, it’s time to watch for signs of mean reversion in many of the former laggards in the last few months, as MMM, TSLA and AAPL have all begun to push higher, while some of the former leaders like NVDA and SMCI, have stalled a bit.

APPL Equity