SPX and QQQ have been churning following the sharp two-week downtrends from mid-July and ongoing Technology underperformance. However, given that Treasury and German Bund yields are both lying near key support while SPX and QQQ are just below key resistance, it’s thought that this week’s Central Bank meetings (FOMC, BOJ and BOE) could serve as the catalyst for upside breakouts in both Equities and Treasuries as markets get a bit more adjusted to policy. Movement over SPX-5492 and QQQ-468 likely could happen coinciding with a breakdown in TNX this week under July lows at 4.144%. I expect the near-term Technology weakness to be complete by end of week.
Yet again, the dismal benchmark index performance has failed to accurately reflect the underlying market strength, as 10 of 11 major sectors were positive in Tuesday’s trading and both Advance/Decline data and volume proved to be quite positive.
S&P’s Equal-weighted ETF (RSP -0.78% ) finished higher by nearly +0.50% on the day and has shown positive gains on three of the last four trading sessions. Meanwhile, Transportation stocks along with Small, and Mid-caps both showed gains of +0.35-+0.50%.
However, investors largely seem disgruntled and impatient, as Technology continues to show near-term technical deterioration. Technology remains the “Achilles heel” for the US stock market in the short run, and largely has served as a near-term headwind towards indices pushing back to highs. Tuesday’s after-market selling pressure in Technology on poor MSFT -1.52% earnings doesn’t look to be restoring any confidence.
Looking back, both Financials and Healthcare rose sharply in Tuesday’s trading. Combined these sectors represent 25% of SPX.
To recap and add to my earlier comments posted in Thursday’s Mid-day (FSInsight/Fundstrat) Flash Insights, the hourly SPX chart shows a very lackluster bounce attempt which now has seen price drop to what can be widely considered to be “Make-or-Break” support near 5390.
Bottom line, holding 5390 will be important into tomorrow’s FOMC meeting. Any decline under that level would likely reach 5369, or 5296-5310 ahead of a strong bounce getting underway.
Conversely, holding at current levels and turning back up over SPX-5490 without any break of 5390 would be the best near-term outcome for Market bulls, as this would solidify this recent pattern as a likely ABC-Elliott-wave corrective move and could result in a push back to new all-time highs.
Given that Technology still looks to require another couple days, it’s hard to weigh in just yet that an imminent push higher before end of week should happen. However, I’ll watch FOMC comments carefully, and believe that any dovishness that leads rates lower likely should prove bullish for US stock indices.
SPX has pulled back to test an area of nine-month support
As shown below, ^SPX -0.80% remains in its two-week downtrend, not unlike QQQ which has just pulled back to new weekly lows today.
One further thing to clarify technically speaking: 1) Any undercut of 5390 would create a five-wave decline from mid-July. This would mean that lows are near (and in my opinion, SPX has maximum near-term weakness to 5300. However, this also means that a move back to new highs doesn’t happen right away and would result in a bounce only before additional weakness into August.
Movement under 5390 would make me put greater confidence in my SPX cycle composite, which calls for a decline into mid-August before a rally into mid-September.
Thus, in this case, a break of SPX 5390 means that an imminent low that results in a move back to highs right away is premature.
However, I still believe that lows in Technology are close and can happen this week in the short-run. As I’ll show in charts illustrated later in this report, this might take another 2-3 days before Technology can bottom out.
Below is the Daily SPX chart which has pulled back to test last week’s lows as well as the uptrend from last October along with daily Ichimoku cloud support. Thus, some meaningful intersection of a few different areas of support are coming together which could make any further weakness difficult to come by.
This relative chart for Technology vs. S&P shows that Technology might bottom out by end of week
Despite the late day after-market negative decline in MSFT -1.52% which has adversely affected a few other stocks like NVDA and AMZN in post-market trading, Technology looks to be very close to reaching support after its three-week pullback.
The chart below helps to give some clarity as to the timing for any potential further weakness, as DeMark counts overlaid on ratio charts of Equal-weighted Technology, vs. Equal-weighted S&P 500 show that Technology is growing closer to support after having gotten stretched into early July.
I expect that Technology should bottom out by the end of this week given this chart and pullback in Technology growing closer to support. (RYT vs. RSP -0.78% )
Charts of NVDA (shown later in this report also show the stock to be nearing key support, adding to the idea that the Tech selloff could be nearing its end.
NVDA looks close to bottoming by end of week
When viewing NVDA on a logarithmic chart, we see that price lies just above prior March peaks from early 2024.
Furthermore, the stock maintains a steep uptrend from 2022 and has weakened for two-and-a-half weeks to get close to its weekly uptrend line support.
DeMark exhaustion shows a similar exhaustion count as the relative count for RSPT vs. RSP. To reiterate, within three trading days, this could find strong support and bottom out following this decline.
(The fact that NVDA shows a similar count as the broader equal-weighted Tech gauge on a relative basis gives me confidence that Tech could stabilize and turn higher by the end of this week)
Overall, 100 looks to be a key level, along with a psychologically important round number. This would represent a 1.618 alternative Fibonacci projection of the initial decline from mid-June, as measured from 7/11 peaks.
Under that there seems to be ample support between $95-$97 based on its rising intermediate-term uptrend coinciding with prior trading highs from this past March.
Bottom line, I view NVDA as being attractive at $100 or lower and am not expecting an immediate break of this uptrend. Thus, any further weakness into end of week should create a favorable risk/reward opportunity for NVDA.
