Trends failed to show much evidence of reversing course after the early 3% gap-down and coincided with strong selling globally across many Equity markets. While a 4% SPX decline normally is followed by a rebound in the following session, it’s important to see some semblance of stabilization in Equities sooner rather than later, given the extent of this selloff. Gold, Treasuries and the Japanese Yen acted like safety trades on Thursday, while the US Dollar and Crude oil were hard hit. While it’s still hard to argue for capitulation given the lack of an extreme overbalance in downside volume, the Equity Put/call spiked to 1.33 into Thursday’s close while the spot VIX now lies 7 percentage points above the 3-month futures contract. Overall, I view the risk/reward as being favorable for US Equities given SPX having pulled back to my 5375-5425 target while Equal-weighted SPX lies near intermediate-term support. However, it’s necessary to see a reversal immediately to avoid momentum and breadth getting even more negative.
Equal-weighted SPX, as shown below, now lies near intermediate-term trendline support while pulling back to just above prior peaks from late 2021. This is an important area and will need to be held in the days to come.
Invesco S&P 500 Equal Weight ETF
Despite what seems like an awful outcome, as might be discerned by watching overnight activity in US Equity futures, there are a few positives to mention that are important:
- Positive divergence is clear on S&P and NASDAQ on daily charts, despite what appears (as of 7:30 pm EST) to be a break of last week’s lows. (Price is set to close under prior lows, while momentum will be quite a bit higher, which is normally considered a positive.)
- The Elliott-wave structure shows the potential for an undercut of recent lows to bring about a “final” leg of this decline, which will likely prove short-lived before reversing higher.
- Sentiment likely will show evidence of capitulation on a gap-down under prior lows, which is exactly what the market bulls have been waiting for. Specifically, it’s important to watch downside volume and/or evidence of high Equity Put/call ratios for the balance of this week.
- DeMark’s weekly TD Buy Setup could be complete as early as next week, showing an “8 count” as part of a “9 count”. This TD Buy setup is nearly complete in S&P 500 and QQQ.
- Strong Ichimoku Cloud support is apparent on weekly charts on S&P 500, QQQ and is also apparent on stocks like AAPL -5.70% . This adds to the likelihood of support to this decline in the coming week, despite it seeming like a breakdown.
Magnificent Seven ETF could show weekly TD Buy Setups within 2 weeks’ time and potentially could set the low as of next week
As shown below, Roundhill’s Magnificent 7 ETF (MAGS -4.12% ) has broken its trend going back to 2023.
However, this could trigger DeMark-based TD Buy Setups within two weeks’ time, with 8 counts out of a possible 9 due next week. This looks to be an important reason why Large-cap Technology might bottom out.
The Magnificent Seven ETF – MAGS
SPX cycle composite shows a bottom on daily cycles within a week’s time
As seen below, the SPX’s cycle composite I employ, which makes use of the 80-day trading cycle along with 171 trading days, focuses on an April bottom for SPX.
While technical trends have worsened in the last week, this cycle aligns with many seasonal studies that discuss SPX trends weakening in February-April before bottoming during the first year of a new Presidential cycle.
In my view, the next 2 weeks should represent an important time window which should have some importance.
SPX Cycle Composite
