Short-term US Equity trends look to have turned back higher last Friday following a choppy period of consolidation in recent weeks. Despite a plethora of bad news domestically and overseas, US Economic data and good earnings have helped markets largely ignore the factors that normally might be expected to ramp up volatility. Technical structure and breadth have improved markedly in recent weeks, while sentiment is not yet bullish enough to think Stock indices might peak out. While the back half of October might prove more volatile than the first half, last Friday’s rally looks likely to lead prices back to new highs for S&P and DJIA and could result in NASDAQ challenging its former all-time highs. Bottom line, I believe equities remain in great shape, and as discussed yesterday, I expect that Equities bottom into the Rosh Hashanah holiday period and likely rally up into 10/12 this year.
The combination of Technology snapping back along with Financials breaking back out to new all-time highs is an important reason why markets can still push higher in the month of October.
The movement in Semiconductor issues, Software and Hardware all look quite promising of late, while Energy and Materials have both begun to backtrack a bit over the last week.
While some deterioration in market breadth along with sentiment getting more bullish, weekly momentum divergences, and DeMark exhaustion, could eventually join forces to produce a late October selloff, I don’t expect that over the next 1-2 weeks.
The breakouts in NVDA along with IGV as a gauge for Software both look very compelling to help Technology continue to strengthen in the short term.
Meanwhile, FXI, and Crude oil both showed sharp deterioration in Tuesday’s trading in a manner that likely jumpstarts the consolidation that I discussed in these areas in last night’s report (10/7/24- Crude, FXI, Utilities & Treasury yields all getting close to resistance.
As shown below, the area near last Friday’s intra-day peaks just above 5753 will be the most meaningful area to watch for SPX in the days/weeks to come. Movement above 5753 is expected and should drive SPX up to 5835. Conversely, 5674 is the most important area of technical support. Unless/until 5674 is breached, the path of least resistance remains higher and I expect an upcoming breakout above 5753.
S&P 500 Index
Software ETF breakout bodes well for this subsector to strengthen further within Technology
I briefly discussed IGV recently (the Ishares Technology Expanded Software ETF) which had been flirting with all-time high territory.
The breakout of $90 happened today, Tuesday 10/8/24, which helps this surpass two prior peaks of the last year along with the former all-time highs from November 2021.
This is a very bullish pattern and bodes well for Software to strengthen further on an absolute basis. Stocks like Microsoft (MSFT 0.22% ) strangely enough, are not the ones driving this to new highs this time around.
Stocks like PLTR 3.72% , ORCL -2.94% , CRM 1.52% , PANW 3.15% , NOW 3.05% are the technical standouts that should be overweighted within the Software space
Stocks like ADBE -0.04% and MSFT 0.22% which have shown some relative underperformance lately, remain technically sound on an intermediate-term basis. However, these are not as timely in the short run, as the initial list of stocks listed above.
iShares Expanded Tech-Software Sector ETF
IGV requires a long-term trend breakout to favor this over Semiconductor stocks
While this week’s breakout in Software is impressive, the intermediate-term charts of IGV vs. SOXX -0.67% in ratio form still show this to be trending down over the last five years.
While IGV has outperformed SOXX since July 2024 in recent months, there hasn’t been an official breakout yet to confirm the outperformance in Software on an intermediate-term basis.
Two possible scenarios look likely:
- Either the breakout in IGV this week will pale in comparison to the coming move higher in Semiconductors as this latter group’s outperformance continues.
- IGV will officially break out vs. SOXX and will start to show more meaningful relative outperformance.
I think it’s right to watch this relative chart carefully in the weeks to come for evidence of a possible relative breakout in Software vs. Semis. If this happens, then arguably a far greater rally could happen in the Software space, and this area would be the one to favor on an intermediate-term basis given its relative strength breakout.
NYSEMKT:IGV – NASDAQ:SOXX
Technology triangle will likely be resolved by an upside breakout
Technology has begun to spring back to life this past week, and we’ve seen impressive technical breakouts from the likes of NVDA, and as illustrated in this report, IGV.
However, it’s important to monitor Technology’s progress given the huge weighting of this sector within SPX and QQQ. As shown below, the Equal-weighted Technology ETF by Invesco (RYT) has formed a triangle pattern vs. Invesco’s Equal-weighted S&P 500 ETF (RSP -1.33% ).
A pushback to recent consolidation triangle highs looks to be ongoing over the last week and it will be important to see if Technology can achieve a breakout vs. SPX after having moved sideways for two months following its decline from early July.
Given that NVDA broke out this week and AAPL -2.95% ’s charts look encouraging along with that of the Software ETF (IGV 0.97% ). I’m expecting that Technology could break out into next week.
If this is the case, then one would have a firm case for why ^SPX -0.83% should advance above 5800 into mid-to-late October. I’ll revisit this chart in a week upon breakout, or breakout failure, but am anticipating an upside breakout in Tech.
NYSEMKT:RSPT – NYSEMKT:RSP
