Short-term trends for US Equities remain negative but Wednesday’s reversal did have the makings of being important from a trading standpoint, and occurred on capitulatory levels of early breadth which can sometimes prove significant. Despite the negative momentum and ongoing negative breadth, I think a case can be made for a bounce into FOMC which then would likely prove to be resistance and line up with short-term cycles that call for a possible mid-month peak. Furthermore, back-month seasonality for September is traditionally quite poor, so the quality of any bounce will need to be analyzed closely. For now, there are some signs of Small-caps having carved out meaningful reversal patterns which could lead to a bounce, and growth seems to be on the comeback after three straight days of outperformance by QQQ vs. SPY.
SPX managed to get above 5525 by the close, which turns short-term trends back to bullish. Momentum and trends have been negative in recent days, but Wednesday’s capitulatory reversal does suggest that rallies might be likely into next week’s FOMC meeting.
While trading in these large consolidation patterns can often be tricky, it’s smart to keep a close eye on Technology which looks to have broken out vs. SPY.
Market breadth managed to turn positive on Wednesday after early non-confirmation by many sectors with Technology. Furthermore, Wednesday’s reversal looked to be the third straight session which bottomed into Europe’s close before pushing higher.
If my thinking is correct, a move up to 5625-5650 looks underway which likely might be reached into next week’s FOMC meeting. Given that this area aligns with the upper edge of this possible Triangle pattern, this area looks important.
Thereafter, some bearish seasonality might result in consolidation again into late September given the traditional Election year pattern that tends to produce weakness in the back half of September. At present, Wednesday’s rally was bullish enough to expect some follow-through.
S&P 500 Index
QQQ vs. SPY has achieved a minor breakout following stabilization near prior lows
This move in Technology has been impressive this week, leading a return into Growth that looks to continue into next week.
While it’s been hard to suggest overweighting Technology on a short-term basis based on deterioration in recent weeks, relative charts of QQQ to SPY show breakouts of the downtrend from mid-August which look to be important.
Furthermore, QQQ vs. SPY did manage to find support near prior lows from early August which appears like a strong level on relative charts of QQQ/SPY.
Following expected or potential outperformance into next week, it might be proper to take a close look at progress in AAPL 0.39% , NVDA 2.08% , GOOGL -0.55% , MSFT -0.68% , META -0.48% , AMZN -0.20% , and NFLX 0.72% to see what’s been rising, and what hasn’t. Furthermore, any move that approaches former highs into the FOMC meeting might constitute strong overhead resistance.
NASDAQ/NYSEMKT
Anemic S&P Advancing data might have resulted in short-term capitulation for US Equities
Interestingly enough, into today’s Europe close, we saw hugely negative SPX breadth levels that had reached the largest negative breadth readings of the year.
Weekly Bloomberg charts which show the percentage of SPX advancing show this to have reached April 2024 lows, and this very well might have served as a capitulatory low.
Share of S&P 500 Index Advancing
Clean Energy turns sharply higher following the Presidential debate
Alternative and solar energy stocks got a big boost today which some traders are attributing to last night’s Presidential debate performance. Whether or not this is true, we did see meaningful outperformance in solar energy stocks and renewable energy, while automakers got punished and underperformed. It’s widely thought that automakers might lose tariff protection from Chinese imports if Trump’s chances fade.
ICLN -1.10% , or Ishares Global Clean Energy ETF, managed to break out of its short-term decline from late August, and looks poised to push higher over the next few weeks.
Stocks like FSLR -2.58% , ALB -0.27% , AES -1.73% , ENPH -2.61% , and VST 2.35% were all top performers within SPX today, while Healthcare Insurers like UNH 1.54% and HUM -11.93% , both underperformed sharply.
While some of the stocks mentioned above remain within very well-established intermediate-term downtrends, it’s worth keeping a close eye on these stocks if they begin to break their respective downtrends.
ICLN did break out technically on Wednesday, which I suspect leads higher to $14.90 without much trouble.
iShares Global Clean Energy ETF
Small caps look to have made a bottom
For the second straight day, IWM -0.03% (Ishares Russell 2000 ETF) closed well up off its lows, forming a technical “Hammer” pattern, which was even more convincing on Wednesday given that prices closed positive for the day at multi-day highs after the early decline.
This could have the makings of a triangle pattern given that IWM made a lower high into late August followed by a higher low into early September. If this proves true, it’s likely that price action will show less volatility in the coming weeks, not more.
Furthermore, price might continue this recent pattern of making lower highs and higher lows until a breakout of the Triangle happens. Initially, I suspect that a rally up to $212.50 is likely, and then could reach $217.50 before settling.
Breakouts of $218 would be meaningful, if/when they occur, while any move back under today’s lows of $204.21 would also have significance.
Based on Wednesday’s positive close, it’s likely that IWM will begin to bounce over the next week, and the higher it can bounce compared to its losses from mid-August, the better the chances of a resolution quickly back to the upside.
As discussed in previous notes, the first meaningful resistance lies near $228, but I suspect that is exceeded at some point, as IWM pushes up to test all-time highs near $244.
iShares Global Clean Energy ETF
