Due to technical difficulties, there is no video for today’s report.
US Equity indices have now sold off for five of the last seven trading days, yet remain within established uptrends from mid-April lows. Technology’s short-term underperformance doesn’t appear too detrimental to technical structure given that many other sectors have snapped back to help “pick up the slack” this past week. Both the US Dollar and Treasury yields have made minor bounces in recent days, yet are part of existing downtrends and should reassert their pullbacks early next week. Overall, the mini-correction looks to have gotten underway a bit earlier than expected. However, breadth levels have improved markedly and there looks to be solid evidence of the “great rotation” getting underway. Bottom line, I expect this deterioration to prove short-lived and buyable, likely early next week before turning back higher. SPX likely finds support near 5500 while QQQ could bottom at $468-$473 before turning higher.
As discussed in recent days, the selloff in Large-cap Technology doesn’t look to be too detrimental to the broader market, and has simply helped “Tech” to go through a necessary correction after having gotten overbought.
The fact that other sectors like Financials, Discretionary, Industrials, REITS and parts of Healthcare have all shown above-average signs of exhibiting above-average relative strength over the last two weeks, market breadth has shown exemplary performance and has risen sharply.
Thus, the market is in much better shape now after a healthy period of mean reversion and catchup from Small and mid-cap stocks, and it’s hard to see Tech’s selloff lasting much longer.
While Small-cap stocks do look to outperform Large-cap in the near-term, it’s hard to extrapolate this into an intermediate-term period of better relative strength for periods of time past 9-12 months. Overall, I suspect that Small-caps will lead between now and September, and then likely consolidate some of these sharp gains until the Election. Thereafter, a period of cyclical strength might be possible again, not dissimilar from late 2016 into early 2017 and lead Small-caps to outperform into next year.
However, any further evidence of Economic weakness becoming more severe should benefit Large-cap Growth, not small-cap Value. Thus, I suspect that it will still be right to consider Large-cap Growth attractive and I feel that the mini-correction in “Tech” makes this sector attractive to buy dips into late July.
The daily chart of NASDAQ 100 E-mini- Futures shows prices just above areas of key support, and the area at 19,500-19612 looks important into next week for a period of support.
This would line up with the uptrend from mid-April along with allowing NASDAQ to reach its first 38.2% Fibonacci area of support on this weakness. Furthermore, this would allow price to potentially fill the minor gap from last month. Overall, I sense that support is drawing near, and it could be in place as of early next week.
NASDAQ 100 E-mini Futures
QQQ pattern normally results in a “final” drop to support which might happen into early next week
The pattern in QQQ looks to be tracing out an ABC pattern on hourly charts from mid-July.
While the short-term formation has shown some minor stabilization in the last 24 hours, this pattern remains bearish and should result in a final drop into early next week before any low is in place.
The Elliott-wave pattern thus far for QQQ looks quite clear and should result in this bottoming at fractionally lower levels early next week.
Invesco QQQ Trust
Energy weakness merits paying attention to
Energy bulls might feel emboldened with the current Backwardation in the Brent Crude futures curve as global oil inventories are depleting at a fast pace anticipated by the International Energy Agency (IEA). However, both Brent and WTI Crude have begun to violate its uptrend and show more weakness this week, just as it neared the top of this range.
Given the possibility of China’s growth sputtering, and supplies across the Americas continuing to build, one needs to be on the lookout for evidence of more material Energy weakness in the months ahead leading into the Election. Both the current Administration and a Trump Administration look to keep US output levels high to bring down inflation and restore US Energy independence. I feel this could be a negative for Energy over the back half of 2024 and potentially into 2025.
I would grow more skeptical of Crude’s ability for a 2H rebound if WTI undercuts $77 but its June lows which will serve as the “line in the sand” for Energy bulls
Energy ETF’s like XLE 0.33% can’t afford to drop under $92.18 without warning of much greater weakness. ETF’s like OIH 0.21% and XOP 0.71% have key support at $318 and $141.88, respectively.
Any break in $72.50 by WTI Crude Futures under the current triangle support, as shown below, would be very negative, and suggest that Energy could be lowered to an Underweight. At present, given the neutral consolidation in both Crude and Energy as a sector, a Neutral technical rating makes sense.
Light Crude Oil Futures 1D
ISRG earnings help drive the stock back to new highs
Today’s better than expected earnings and revenues have helped propel the stock up 8%+ back to new all-time highs. Their robotic Da-Vinci placements look to have accounted for 70 of the 149 systems placed in the US during the last quarter and its results seem to be well respected by the Street.
Technically, ISRG had dropped roughly $30 from its early July peaks, but Friday’s results helped this claw back to new highs. As can be seen, the chart remains in very good shape and volume was very heavy and above normal on today’s strong push back to new highs.
I added ISRG -0.49% to my technical stock list (UPTICKS) in May of 2023 and have technical targets of $460, and then $496 for the stock.
I feel that today’s breakout helps to make this one of the more attractive stocks within Healthcare and anticipate that it reaches the upper target.
Intuitive Surgical
