Short-term trends are bullish but extended following the recent pushback to new all-time highs for SPX and QQQ, while many other indices failed to participate. While DJIA, RSP, and IWM should eventually begin a similar move back to new all-time highs, at present, some minor consolidation looks possible initially in large-cap Technology following a stellar comeback. I continue to view the larger move for Equities as being higher, given the subdued sentiment on both the Retail and Institutional levels. Moreover, a bullish equity structure combined with solid momentum and breadth warrants the overweighting of US Equities at a time when investors are largely unclear about the extent of tariffs or their implications. In the short run (meaning 3-5 days,) one cannot rule out some minor consolidation given the choppiness still present for many US Stock indices. However, there remain ample reasons for optimism in the “larger scale of things” given the rebound in Technology.
SPX and QQQ have broken out, but many others haven’t
I think it’s important to recognize that despite last week’s breakout back to new all-time highs for SPX and QQQ, many other indices have failed to follow suit thus far.
While I expect an eventual broad-based rally to materialize, it’s not wrong to think that Technology’s recent dominance in the short run might translate into Technology showing even further dominance in the US Equity market in the months ahead.
Overall, while some sectors like Industrials, Healthcare, Real Estate lagged SPX in the last week while Technology outperformed, it’s expected that most sectors eventually should begin to bottom out and show positive performance into March.
Thus far, Equal-weighted SPX, DJIA, DJ Transportation Avg., and Russell 2000 have all lagged the S&P 500 and QQQ’s move back to new highs.
While not a bearish omen, it is important that inter-market divergences eventually should be resolved for markets to show a more balanced, well-rounded rally.
As shown below, the NASDAQ Composite, is not unlike what’s being seen in DJIA, and other indices which have rallied to within striking distance of November-December 2024 peaks, but not over.
Following the sharp runup in recent days, the fact that S&P and NASDAQ Futures are below all-time highs suggests some further consolidation in the near term.
Specifically, some larger-cap Technology stocks have begun to falter in recent weeks, which might lead to Large-cap Technology making a minor consolidation before it continues to increase in the weeks and months to come. Stocks like PLTR -1.59% , META -1.18% , ANET -3.40% , CDNS -3.00% , and AVGO -2.84% are examples of strong technical chart patterns for stocks that have recently fallen over the past week.
Bottom line, it wouldn’t be far-fetched to expect a minor backing and filling which should prove to be a very attractive buying opportunity before the push to new highs happens across multiple indices and sectors. NASDAQ Composite, as shown below, might require 3-5 days of consolidation before it turns higher to achieve its own breakout to join SPX and QQQ.
Nasdaq Composite Index
NVIDIA is no longer the top driver of returns for SPX
As shown from this chart from Bloomberg below, Meta Platforms is now the stock that has shown the most outperformance in SPX this year, accounting for roughly 13% of SPX’s +4.4% YTD performance through Tuesday 2/18/25.
Moreover, seven of the top 10 top performers within SPX this year are not Magnificent 7 stocks, but rather are spread across multiple industries. These stocks outside the Magnificent 7 are: V 0.43% , LLY 2.12% , JPM -0.45% , NFLX -1.70% , and WMT -2.29% .
This temporary exclusion of the “Magnificent 7” from SPX performance leadership certainly does not mean that these stocks won’t eventually join and show strong relative strength and performance within the SPX in the future.
However, for many who might think the SPX remains dominated by just high-flying Tech stocks, this year’s performance tells a different story.
Natural Gas gains look likely into March, given frigid temperatures in East and Midwest US
While European Natural gas is headed for its longest run of losses in more than a year, given US-brokered talks on ending the war in Ukraine and milder weather in Europe, US Henry Hub Natural gas has now risen for seven straight days and is trading back above $4 per million British Thermal Units (B.T.U.) for the first time since late last month in January.
Weather forecasts have dropped for the eastern and central parts of the US for the back half of February and early March, and this cold weather can continue to support higher Natural gas prices. Front-month “Natty” is likely to test and exceed mid-January peaks at 4.369, which should help this get back over $5 to $5.74, which is a 50% retracement of the entire decline in NG -4.63% _F since 2022. Overall, Natural gas looks bullish, and this momentum should help sustain the rally into March.
While ETFs like UNG 2.99% and BOIL 3.69% might be considered by aggressive investors to take advantage of rising Natural Gas prices, it’s important to exercise caution when considering these ETFs given the Futures roll for Natural Gas. This can often adversely affect the performance, making UNG and BOIL imperfect vehicles for attempting to participate in rallies for Natural Gas. Energy stocks involved in Natural Gas production, at present, look far more attractive than the Fossil fuel-related energy names.
Natural Gas Futures
XLK might underperform the broader market on a 3-5 day basis after a stellar rebound in recent weeks
XLK has served as a source of surprising gains in recent weeks following a lackluster January period of performance.
Last week’s 3.07% gains through 2/18/25 served to be the best performing ETF of any of the 11 Sector SPDR ETF’s that make up SPX.
However, in the short run, following a steep run-up, many large stocks have shown some minor signs of faltering in recent days. PLTR -1.59% , CDNS -3.00% , ANET -3.40% , and INTC -2.63% all lost 6% in trading on Wednesday, a usually sharp degree of selling pressure within the Technology Sector SPDR ETF (XLK -0.98% ). META -1.18% also has begun a short-term decline following its record 20-day advance.
Furthermore, despite above-average relative strength over the last week, stocks within XLK like EPAM -5.82% , FI -0.32% , AVGO -2.84% , AMAT -1.12% , SNPS -1.57% , MSI -1.89% , and ZBRA -1.37% all fell between 2%-8.37% on a rolling 5-day % basis, in addition to the weakness having been seen Wednesday in PLTR, CDNS, ANET and INTC.
As shown below, relative charts of XLK -0.98% to RSP -0.61% have produced a DeMark-based TD Sell Setup on daily charts. While not a “tried and true” sell signal per se, this could lead to some near-term consolidation in Technology over the next week following its recent outperformance.
For many who are overweight Technology, this might represent just a tactical pullback of a few days’ time following a steep runup. After all, Technology’s Equal-weighted ETF from Invesco, RYT, shows no such signal.
Therefore, in the bigger scheme of things, I view Technology’s resurgence to be quite positive and bullish. However, in the next week, I suspect that Technology might underperform, and this underperformance might prove to be pronounced in some of SPX and QQQ’s largest names.
Thereafter, I suspect that a larger pushback to new all-time highs will get underway for many US indices and should continue for SPX and QQQ.
XLK / RSP
