"There is no way around the hard work. Embrace it." - Roger Federer Monthly Suspense: With everyone on edge over a possible government shutdown this weekend, let us relax and take a look at the MONTHLY technical picture for the most widely followed benchmark. If bullish seasonality kicks in to start Q4, these current back-to-back MONTHLY losses could be considered a cup with handle pattern. In my opinion then the lows of 4200, a bullish ascending triangle breakout on the WEEKLY chart need to hold. Below one can see how rare 3 month losing streaks are, and the last 2 Octobers rose robustly by 8 and 7% respectively in 2022 and 2021. For the less sanguine outlook, if that 4200 level does not hold a move back toward the rising 50 MONTH SMA comes into play, which could be near the very round 4000 number as PRICE catches down. One aspect of the chart below that is concerning is the possible false signal on the MONTHLY bullish MACD crossover that just happened recently. If that were to break back below it looks very similar to the rocky behavior during COVID. That could be the catalyst for a 7% plunge lower.
"Old Tech" Shortcomings: The mature, "old tech" stocks once totally in vogue are suddenly becoming shunned. They were not too long ago clamored for their defensive nature and dividend yields, but not any longer as the overall market has been shaken out too. HPQ can not blame the recent market fragilities for its softness. Its weakness began with a bearish dark cloud cover candle on 7/12 and has now shaved one-quarter off its value during a current 7-week losing streak. The stock pays a dividend yield of 4%. ORCL slumped 13% after an ill-received earnings reaction on 9/12 and it looks like it is on a collision course with the very round par number near its 200-day SMA. IBM slumped nearly 5% this week after the prior week recorded a double top just above the 150 level and it is on a 7-session losing streak. Below is the chart of CSCO and on 9/21 it completed a bearish island reversal (following the gap up on 8/17) after announcing it was purchasing SPLK. I prefer to act on these events on more mundane, generic news but this is starting to take on the look of a bear flag as well.
Software Carrying the Load: Perhaps that is about to change as the semiconductors sprang to life somewhat Thursday. Of course, one day does not make a trend but it is something to keep an eye on heading into Q4. This week with one session left the SMH is flexing its muscles higher by almost 2% as the IGV is down fractionally. Notice the SMH recorded a doji candle Wednesday after a 21-handle drop during the last couple of months (following the 7/31 peak with a doji candle too). Perhaps the semis will give the IGV some breathing room, as we have always said competition is a good thing. Give credit to the IGV for not undercutting the August lows, something the SMH did already, so maybe the IGV needs to do that to wash out some impatient shareholders. A break below a bear flag in the top 5 holding INTU below the very round 500 number may expedite that process (ADBE is cliff-hanging at the same 500 area). CRM looks shaky at the very round 200 figure, but ORCL did record a bullish engulfing candle after its recent earnings flap. PCE Friday morning should get these names moving fast. Buckle the seat belts.
Semis on Edge: As technology is most likely in a position where it will be "impossible to catch" (insert famous Secretariat call as the horse hit the turn well out in front at Belmont Stakes in 1973 to win the Triple Crown) from the top 3 major S&P sectors on a YTD basis up 30%, will it back up enough into year-end to let other lagging groups make up ground? A lot of that will depend on the semiconductors inside the diverse space and below is the chart making the argument that its recent decline could accelerate. It is the WEEKLY chart of the SMH which is now 12% off its peak made in early August after a rough double top near the 160 level. Notice there was a precipitous drop from that area in late 2021 with 2 WEEKLY bearish engulfing candles and then an even star pattern completed the first week of 2022. There are some similarities with a bearish engulfing candle the week ending 8/4 and then another the week ending 9/8 that started a bearish 3 black crows formation. Notice as well that on the bottom of the chart the ADX signal line has begun to slope heavily lower and may record a bearish cross if that red line turns above the green. When did that last occur? You guessed it to start 2022 when the ETF rolled over and did not stop for almost a year.
Golden Slump: Gold fell 1% Tuesday as markets slumped as well. It is not acting as the buffer it once did in times past. One has to contemplate if the precious metal can not behave in this type of environment when will it? We wrote about it this weekend in our WEEK AHEAD Note and it is now pressing toward the lower end of the tight range between 1900-2000 which it has done on the MONTHLY chart since March. A pierce underneath 1900 could send this spiraling lower toward the 1600 or 1700 area that it did the last time it backed away from the very round 2000 number in 2020 and 2022. Gold miners have been a drag on the materials sector as a whole as it holds onto a fractional YTD gain going into Q4. But it has not been as much of a weight as aluminum in 2023 as AA has been abysmal. Since touching almost 100 in 2022 it has spiraled lower and just broke below a bear flag pivot which carries a measured move to 22.