Short-term trends from January lows remain bullish but have shown some consolidation over the past 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 since peaking on 1/13/25. Overall, given the subdued sentiment on both a Retail and Institutional level, I feel that recent weakness should likely start to stabilize this week and begin to trade higher into March. Furthermore, the larger move for Equities arguably should be higher despite the fact that the back half of February typically proves seasonally weak. In the short run, the SPX retreat should likely be nearing support, and I feel that NVDA might turn out to be the positive catalyst for Technology and Equities to begin to turn back to the upside in March.
SPX pullback likely to bottom this week
Monday’s break of SPX-6000 has not broken the uptrend from mid-January, and is thought doubtful to break early February lows near 5923 before turning back to new highs.
The entire move from early December appears to be near the final stages of this decline, which, when complete, should lead SPX back to new all-time highs.
Given the short-term cycles that have governed minor stock market bottoms over the last four months, the middle part of the month served as important time-based support during November, December, January, and February.
If this relationship continues to hold, it should allow for a sharp rally to occur between Wednesday of this week into early March ahead of another possible minor low into mid-March.
Overall, it’s important to point out that larger uptrends from mid-January lows have not been broken in SPX. Furthermore, patterns in QQQ remain within triangle consolidation, and it’s thought that this week might provide a low to this recent weakness.
Given that price is growing close to the downside area of importance for SPX and QQQ, it might be likely that NVDA earnings might serve as an important catalyst for Technology, leading Tech back to new highs following the minor downside volatility from last week.
S&P 500 Index
Pharmaceutical stocks are starting to strengthen, and DRG has just achieved a breakout of its reverse Head and Shoulders pattern.
The NYSE ARCA Pharmaceutical Index (DRG) has just broken out of a well-defined basing pattern that many would refer to as a reverse Head and Shoulders pattern.
This is a bullish development and should help Pharma stocks act well at a time when the broader market has proven quite choppy in recent months.
Overall, Healthcare has been increasingly showing more strength in recent months, and Healthcare on an Equal-weighted basis is 4th best in performance Year-to-Date (YTD) with returns through 2/21/25 of +3.75% which is better than the +2.62% shown by the Equal-weighted S&P 500 ETF.
While Biotech remains under pressure and has not begun to strengthen, other groups like Medical Devices and Healthcare Services broke out in late 2024 and have demonstrated above-average technical strength.
Pharmaceutical stocks should now be “kicking into gear” and look far stronger than a few months ago.
Stocks like ABBV, LLY, and JAZZ stand out as having some of the better technical patterns, while JNJ requires just a move over $168 to help jumpstart its move back to new all-time highs.
Near-term technical targets for DRG lie near 1050.
NYSE ARCA Pharmaceutical Index
Healthcare has a chance to confirm a monthly DeMark buy signal by the end of February.
The snapback in Healthcare is ongoing. First the Medical Devices and Healthcare Services stocks started to trade higher, and now Pharmaceutical stocks have begun to rebound.
The ratio of the Equal-weighted Healthcare ETF by Invesco (RYH) vs. the Equal-weighted S&P 500 ETF (RSP) has now been trending higher for two straight months.
With just four trading days remaining in the month of February, Healthcare might possibly confirm a monthly TD Combo “13 Countdown” exhaustion signal by the end of this week.
Such a confirmation would likely help Healthcare to push higher into the end of July, which marks the end of a seasonally good time for Healthcare.
Despite the negative intermediate-term trends for Healthcare, I suspect that confirmation of a monthly buy signal using DeMark indicators could help this group start to show even more strength in the months ahead.
This should prove to be a tailwind for SPX, as Healthcare remains the second largest sector within SPX, at just under 13% of market capitalization within the S&P 500.
RSPH / RSP
The Percentage of SPX stocks within 20% of 12-month highs remains above 70%
As seen below, market breadth has indeed begun to stabilize in the last month following a difficult period between September 2024 and January 2025.
Despite the concern about recent market volatility this past week, the technical structure remains in good shape, and market breadth has not cratered to the extent that investors should have much concern.
This “Percentage of SPX stocks within 20% of 12-month Highs” remains something to keep a close eye on when it starts to drift lower. While this did happen between October 2024 and January of this year, it has since stabilized above 70%.
Until there’s more evidence of either trend giving way or breadth starting to deteriorate in a larger fashion, I’m inclined to think that the recent SPX consolidation is constructive and creates a better risk/reward opportunity for Equities.
S&P 500 Breadth
