Short-term trends from January lows remain bullish but have shown some consolidation this week, which has brought the price down from the highs of the most recent range down to test important trendline support. Treasuries and Cryptocurrencies have begun to bounce further in recent days, while the US Dollar showed a sharp decline this past week. Overall, given the subdued sentiment on both a Retail and Institutional level, I continue to view the larger move for Equities as being higher despite the back half of February typically proving seasonally weak. 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, the SPX retreat likely should be nearing support into early next week following SPX’s decline to right above 6000 while QQQ hovers just north of 525. As discussed earlier this week, the extent of the rebound in Technology suggests that this minor “backing and filling” in Equities should be buyable, not something that leads to a large decline.
SPX retreat should be nearing important near-term support
After an unusual week for sector rotation where early week Technology strength gave way to weakness, Staples outperformed Discretionary, and many high-flying growth stocks fell sharply, SPX has retreated down to the key 6000 area.
I feel that the strength in Treasuries along with the strength in Cryptocurrencies are both possibly important as positives for the Equity market heading into next week, along with the
As shown below, this looks to be an important juncture for SPX, which I feel could act as support into early next week. While the uptrend from mid-January was, in fact, violated on Friday’s close, SPX has not undercut 6000.
Furthermore, if this were to be violated early next week, the downside should prove minimal and not breach early February lows before turning back higher.
S&P 500 Index
QQQ also lies right near an important area of support
The risk/reward scenario seems to be getting much better for QQQ ahead of next week’s NVDA earnings. Despite the lack of upside follow-through following the breakout back to new all-time highs earlier this week, I don’t sense that this week’s pullback should give investors much to worry about.
Technical structure remains intact, and Technology as a sector simply looks to have shown some consolidation after outperforming nearly every other sector in the one week return into 2/19/25, with returns of over 3% ahead of the last two days of selling.
Overall, 525-526 could prove important for QQQ, and under lies 2/12/25 lows at 521.95 which align approximately with the area of trendline support from mid-January lows.
Ideally, prices should begin to stabilize early next week before NVDA’s earnings serve as a potential positive catalyst for QQQ to push back to new highs.
Invesco QQQ Trust
Magnificent 7 (“Mag 7”) likely won’t stay the “Lag 7” for too long
Many investors realize that despite SPX having pushed to new all-time highs briefly this past week, the US stock market has proven a lot more difficult than price action might suggest.
The Mag 7 for example has been floundering since having peaked last December and has largely moved sideways in consolidation.
There are several reasons for optimism heading into next week:
-NVDA earnings very well could serve as a positive catalyst for Technology and the broader market and this stock remains attractive technically.
-The technical structure of Roundhill’s Magnificent 7 ETF MAGS -2.55% doesn’t look all that bearish despite some sideways churning in the last couple of months. Moreover, the lack of a discernible Elliott-style Five-wave decline from the highs suggests a large triangle pattern that should eventually be resolved by movement back to the upside.
-Treasury yields have begun to break down sharply in the last month, which bodes well for a return to Growth.
-Mag 7 names like MSFT, AMZN, and GOOGL are all near support, and recent downside volatility in META should be approaching its own support by Tuesday of next week.
Overall at a time that Small-caps remain under relative pressure vs the SPX, I don’t mind sticking with SPX, expecting a return to large-cap Growth which led this market for most of February.
Roundhill Magnificent Seven ETF
The ratio of Consumer Discretionary to Consumer Staples has plunged to multi-week lows this past week
As seen below, following a sharp five-month rally (most recent, as part of a larger three-year rally from 2022), Consumer Discretionary in Equal-weighted form (RCD) has pulled back sharply vs. Consumer Staples in Equal-weighted form (RHS).
This does look to be an important one-week reversal in Discretionary vs. Staples, which looks to be largely due to the rally in Food stocks this past week (which aided Staples).
Overall, I think it’s possible that Discretionary might underperform a bit longer vs. Staples into early March, but I don’t view this as necessarily leading the stock market down much further.
However, the strength in Staples has been “hard to come by” over the past five months, and is an interesting and new development as part of this ongoing sector shuffle that markets are undergoing these days.
In the short run, I feel that any further decline in Discretionary relative to Staples into next week could likely represent a chance to own Discretionary relatively speaking to Staples, as this remains a very attractive sector, technically speaking.
RSPD / RSPS
Consumer Staples strength is interesting, but it hasn’t yet achieved enough to think this can outperform
As will be shown below, the ratio of Staples vs. the Equal-weighted S&P 500 has not shown sufficient strength to argue that Consumer Staples is bottoming as a sector.
Despite the strong performance in many Food stocks this past week (HSY 4.07% , ADM 3.75% , BF/B, among others) the Staples sector remains within a strong ongoing downtrend vs. the Equal-weighted S&P 500.
As shown below on monthly charts of RHS vs. RSP -1.52% , Consumer Staples has been trending down since 2022 vs. the Equal-weighted S&P 500 as part of a larger downtrend since early 2020 (The larger intermediate term chart shows an even more pronounced decline, which extends back since 2009 – not shown).
While the decline from 2020 into 2021 did eventually lead to a large rally in Consumer Staples, this coincided with the presence of DeMark’s TD Sequential “13 Countdown” signal, which at present is incomplete.
Given that this might take (at a minimum) another 2-3 months of Consumer Staples underperformance before triggering and that downtrends extending back since 2022 have not been exceeded, it’s wise not to expect too much more outperformance from the Staples sector at present. I’ll monitor this going forward, as this could eventually give a signal in May or June, which might be worth adhering to. At present, Consumer Staples remains a Technical Underweight, and investors should view the recent underperformance in Consumer Discretionary as making this sector appealing.
RSPS / RSP
