Note: Due to travel commitments, there will be no daily technical strategy video this evening.
Markets remain quite choppy, with SPX largely range-bound over the last eight trading sessions as part of an ongoing bullish uptrend. Despite ongoing deteriorating breadth issues, I expect this recent consolidation to be resolved higher initially, but it remains important for markets to demonstrate some above-average sector participation after the FOMC meeting, given how weak the near-term underperformance has proven to be in many sectors. Despite the counter-trend bounce underway in both TNX as well as DXY, it’s unlikely that mid-November peaks are exceeded before the recent downturn follows through further to finish the year trending down. Overall, I don’t think the breadth of weakness matters just yet to the US stock market. Technology has successfully managed to turn higher in a way that’s been helpful to the market indices, despite underperformance in many various sectors. Near-term, this looks to continue.
In a nutshell, SPX’s recent eight-day trading range is bound by 6085 on the upside and 6035 on the downside. A daily close above or below either of these levels should lead the trend for the days ahead.
I expect that Equity indices likely turn higher post FOMC, but longevity to any triangle breakout depends on broad-based participation out of sectors like Financials, Industrials and Consumer Discretionary in the weeks to come.
Until this triangle is broken, it doesn’t make much sense to be bearish at this time of the year if Technology is leading stocks back higher. If/when this move in Tech starts to face resistance and other sectors cannot “pick up the slack” then a pullback will likely get underway. My thinking is that this likely will prove to be a January 2025 occurrence.
S&P 500 Index
SOX breakout likely helps Semiconductor stocks start to show short-term strength following the recent churning
The success in the Philadelphia Semiconductor Index’s (SOX) daily close back above 5184 has led to a five-month downtrend line breakout.
Monday’s technical breakout looks constructive given that price failed at this level twice before, since October. This should translate into gains to challenge 5350 which lies near mid-October peaks and above would lead back to 5930.
Overall, today’s move is seen as bullish for Semiconductor outperformance in the near-term and should provide a mean reversion bounce after a difficult few months for this sub-sector within Technology.
PHLX Semiconductor
NVDA breakdown looks to be quickly nearing support
Bottom line, given the SOX breakout on Monday, I’m not too concerned about the weakness in NVDA. The stock did violate prior lows from late November on a daily close, but this entire move from early November looks to be consolidation as part of a minor ABC-type pullback.
In plain English, this simply means that I don’t expect NVDA to have much more downside, and recent weakness makes this attractive from a risk/reward perspective.
As shown below, the lows of the recent Ichimoku cloud intersect just above $125, which should provide solid support for additional weakness.
In the days to come, any daily close back above last Friday’s intra-day highs of $139.60 should help NVDA start to turn back higher toward all-time highs. Until that time, it’s wise to have patience with this name.
NVIDIA Corporation
Semiconductors could show some mean reversion snapback higher relative to Software in the weeks ahead
Relative charts between the Ishares Semiconductor ETF (SMH -0.25% ) and the Ishares Expanded Tech Software sector ETF (IGV 0.73% ) have begun to reverse higher following a difficult four-month relative period of underperformance.
Semiconductors underperformed Software since the mid-July peak, but the ratio between the two (SMH/IGV) looks to be at/near support and has shown evidence of turning back higher.
I expect that this leads to a late-year mean-reversion type bounce for Semiconductors, which could relatively outperform the Software names over the next few weeks.
As this weekly chart shows, the Semis had gotten a bit extended vs. Software in relative terms, so this minor “backing and filling” didn’t do too much damage to the group.
While weekly momentum has been bearish in recent months on this pullback in Semis, I’m not sure that this translates into the inability of Semis to show some short-term relative outperformance.
If/when this downtrend between SMH and IGV is successfully exceeded, a much larger period of strength in this relative relationship will be achieved.
At present, the key takeaway is that following a lackluster period for Semiconductor stocks within Technology, this sub-sector is now showing signs of a bounce.
I would expect this likely helps to “put a floor” under stocks like NVDA which have underperformed recently and helps NVDA stabilize in the days ahead into FOMC and turn back higher.
SMH/IGV
