Equity trend bullish but I suspect that until both DXY and TNX break trendline support the rally might prove a bit choppier into the end of May before a stronger push higher. A broad-based move seems to be approaching, but hasn’t yet been confirmed by a breakout in Equal-weighted S&P 500 nor Russell 2000 index. Overall, short-term trends remain bullish, and momentum and breadth are supportive of further gains into mid-June.
Semiconductor Index might temporarily find resistance near all-time highs
Semiconductor stocks remain the focus with NVDA earnings today and its recent sharp outperformance successfully lifting this sub-sector higher to within striking distance of all-time highs.
Post-market activity showed NVDA 1.84% shares trading higher briefly above former all-time intra-day highs as 2Q revenue guidance exceeded estimates and first quarter numbers came ahead.
SOX (Philly Semiconductor Index) shows a DeMark 8 count (out of possible 9) on its Daily TD Sell Setup count. Normally these signals when complete (and this is not complete, by 1 day) tend to lead to stallouts in a current trend (and/or a slowdown (in very short term only)) before the trend can likely continue.
Given that SOX is near its all-time highs from March, one could expect that these former all-time highs might offer some near-term resistance to gains into tomorrow’s opening print (and potentially into Friday)
PHLX Semiconductor
Semiconductor intermediate-term rally could last into mid-June
Interestingly enough, the weekly DeMark counts could end up being finalized exactly near where the AAPL -0.79% cycle composite chart shows a potential peak, namely around mid-June.
As shown below, the weekly exhaustion count per TD Sequential and TD Combo isn’t yet complete and will require at least another three weeks of gains and potentially five weeks.
Thus, the key takeaway from this reading of the SOX weekly chart is that NVDA’s earnings are unlikely to mark a major peak for Technology, nor for the Semiconductor sector, but might provide a short-term stalling out with SOX up near all-time highs.
Any mild consolidation following NVDA’s earnings announcement likely should prove short-lived before a continued rally higher into mid-June.
Given NVDA’s own rally to right near all-time highs similar to the Philadelphia Semiconductor index (SOX), we’re likely to see this area become a battleground for both resistance and if/when exceeded, as support to any pullbacks into next week.
PHLX Semiconductor
Energy has shown some stubbornness when trying to turn higher
The downturn in Energy today (Wednesday 5/22) relative to SPX is somewhat concerning technically after a failed bounce attempt which started last week.
As daily relative charts show of Invesco’s Equal-weighted Energy ETF (RYE) vs. Equal-weighted S&P 500 (RSP -0.64% ), this chart has just weakened back to new lows as of Wednesday’s trading.
This has now reached the lowest levels since March and postpones the likelihood of an immediate snapback in Energy (given the premature formation of any downside exhaustion), in my view.
Furthermore, the apparent five-wave decline on daily charts now tends to shift the odds away from a move back to new highs for Energy this year.
Bottom line, while I expect an upcoming low, this might not materialize for another 1-2 weeks given the lack of confluence of DeMark exhaustion.
Furthermore, when a bounce does get underway, it looks right to use that rally to sell Energy sometime in late June/July. I’ll comment more on this when it’s time, but WTI Crude oil weekly cycles have a distinct downward slope during the back half of 2024.
Equal Weighted Energy vs Equal Weighted S&P 500
Transportation stock underperformance has been a recent drag on Industrials
I discussed a week ago that the move in Industrials down to multi-day lows in relative terms vs. SPX might lead to some near-term underperformance in this group before it began to rally back to new highs.
Transportation stocks have been a key laggard within the Industrials sector, and unfortunately, as a leading sector, have not provided a lot of confidence thus far.
As the daily chart shows below of the DJ Transportation Average, the breakdown in April for Transportation looked bearish technically.
Since last month, a rebound attempt failed to get back above former pivot point of the breakdown (shown by trendline across former lows) before turning back down sharply over the last week.
While just one “piece of the puzzle”, it would be encouraging to see Transportation stocks stabilize here without violating early May lows and turn up sharply to break out above the upper area of this larger triangle pattern.
Such a development would give lots of confidence to the idea of a broad-based rally getting underway. At present, the DJ Transportation Avg, not unlike the Russell 2000, and Equal-weighted S&P 500 ETF, has a bit of work cut out for it.
Dow Jones Transportation
