Near-term and intermediate-term technical trends remain bullish for US Equities, and Wednesday’s bounce made sufficient progress to help establish a new short-term uptrend, which arguably should carry higher over the next 1-2 weeks to hit new all-time highs and might even exceed 6500. The outperformance of AAPL -0.01% has led to a much-needed consolidation range breakout above $216 as of Thursday’s close. This could help energize ^SPX and QQQ -1.31% despite some increasing weakness being seen in other areas of the market. At present, bearish August seasonality should take a back seat to a push back to new highs, and I don’t suspect much of the weakness gets underway until possibly the August expiration. Furthermore, both Treasuries and the Euro and Yen look to rally over the next week, which also could help Precious metals and Cryptocurrencies push higher as well. While technical risks have begun to rise in recent weeks, it looks premature to concentrate on these at present as indices begin a climb back to new all-time highs and trends remain positive. My view is that the next 3-5 trading days could prove to be the most positive of the month of August before some slowdown gets underway.
Minor churning briefly held back US Equities on Thursday as Equal-weighted sector ETFs of Financials, Technology, Consumer Discretionary, and Communication Services all fell more than -0.50% in trading on Thursday. (Note, XLK -1.63% still finished positive despite the loss in Equal-weighted Tech.)
Moreover, there appeared to be additional signs of rotation, as Consumer Staples turned in very sharp gains along with Utilities and Healthcare (Despite the losses in Pharmaceutical stocks)
However, the breakout in AAPL -0.01% served to boost Tech Hardware and provide a meaningful lift to Equal-weighted Technology, as stocks like DELL -0.07% , HPQ -3.80% , HPE -1.55% , GLW, and CSCO -0.53% all rallied more than 1%.
Overall, technical trends remain quite bullish despite some of the sector rotation and recent breadth deterioration of the last two weeks.
Bottom line, I believe it’s right to expect ^SPX is a very attractive risk/reward with upside to potentially 6500-6550 and Tuesday’s 6289.37 lows serving as short-term support. Technically, I would be surprised if this level gave way in the days ahead and expect some imminent upside follow-through, which should test and break out above late July peaks of 6427.02.
As detailed yesterday, only if 6212 is broken would the short-term technical structure change to more bearish. Unless that happens, I expect that AAPL -0.01% and many parts of Tech Hardware and the Magnificent 7 can serve to drive strong market performance over the next week as ^SPX and QQQ -1.31% push back to new highs.
S&P 500 Index
AAPL breakout has helped the Tech Hardware sub-sector achieve its own breakout this week
AAPL -0.01% ’s breakout on Thursday looked to be helpful to Tech Hardware, and stocks like DELL -0.07% , ZBRA -0.78% , HPQ -0.70% , HPE -1.55% , GLW -1.16% , and CSCO -0.53% all showed sharp outperformance.
As shown below, the strong outperformance of Tech Hardware has resulted in the S&P Technology Hardware index (S5TECH- Bloomberg) showing a minor breakout itself, similar to AAPL -0.01% today.
This is technically quite bullish for this part of Technology, and it looks right to position in Tech Hardware in the short run over Software, which has shown some bifurcation lately.
Overall, I remain bullish on Technology, but it’s increasingly important to have more selectivity following Tech’s recent outperformance.
S5TECH Index
Software doesn’t look as appealing in the near-term
Increasingly, more and more Software stocks have begun to show some technical deterioration.
Former leaders like NOW -2.13% , CRM -2.23% , FTNT -2.18% , FICO -2.00% , IT -0.25% , ADBE -0.18% , and ACN -0.55% are all down more than 10% in the last three months.
Outperformance from stocks like PLTR -2.60% , ORCL 0.30% , MSFT -2.72% , and CDNS -2.36% has made it increasingly more important to have proper selectivity when choosing Software names, and many of the laggards which have fallen 10%+ in recent months don’t show immediate evidence of stabilizing.
The S&P 500 Software and Services Industry Index (S 0.06% 5SFTW) just broke an uptrend stretching back since April of this year and fell to multi-day lows this week.
That’s a near-term concern for a sub-sector that had shown strong outperformance over Semiconductors going back to the Summer of 2024.
Overall, Software has lost some near-term technical appeal at present. While some of the leaders remain technical standouts, the laggards have begun to show more meaningful technical damage and haven’t yet begun to look appealing from a counter-trend perspective.
This breakdown in the S5SFTW index likely points to additional near-term weakness in Software as a sub-sector, which very well might persist into September before this can begin to stabilize.
Thus, while Technology remains a Technical Overweight, it’s becoming important to be a bit more selective on what to own.
S5SFTW Index
Pharmaceutical & Biotechnology sub-sector is likely to experience additional weakness
The extent to which LLY 0.82% , VRTX 0.35% , CRL -0.13% , MRNA 0.65% have weakened in recent days likely points to additional weakness within the steadily deteriorating Pharma/Biotech/Life Sciences sub-group within Healthcare.
As shown below, the intermediate-term pattern on S5PHRM (S&P 500 Pharma, Biotech and Life Science Industry Group GICS Level 2 Index) has proven to be a laggard since its sideways base began forming in 2021.
Today’s break of the minor uptrend given LLY 0.82% and VRTX 0.35% weakness this week is a concern, and I don’t expect this sub-sector of Healthcare to be able to show technical strength anytime soon, in my view.
In the short run, a retest of this lengthy area of support near Spring 2025 lows looks likely into October of this year.
If/when this is broken, this could put severe downward pressure on this group, which has already been weakening since Last Summer (As part of the lengthy four-year Neutral pattern).
Overall, Healthcare as a sector remains a Technical underweight, and I don’t suspect it’s right to try to buy dips in many of the underperforming names that have dropped on heavy volume this week.
This sector likely could show further underperformance in the weeks/months to come before it can stabilize.
I’ll comment on VRTX 0.35% , and LLY 0.82% in tomorrow’s intra-day Flash Insights comments as both of these have been particularly hard hit this week.
S5PHRM Index
