STOCK INDEXES MAY HAVE PEAKED -- THE QUESTION IS HOW MUCH WILL THEY RETRACE -- FALLING CHIP STOCKS THREATEN NASDAQ UPTREND -- AMAZON IS THE FIRST OF BIG FIVE TO BE SOLD
STOCK RALLY MAY HAVE PEAKED... A number of short-term technical indicators suggest that the spring rebound in stocks may have peaked this past week. The daily bars in Chart 1 show the S&P 500 selling off on Thursday and Friday after touching its 62% Fibonnaci retracement line (purple arrow). It's also not far from its falling 200-day average which is also likely to act as an overhead resistance barrier (red arrow). Its short-term momentum indicators may also be weakening. The 14-day RSI line in the upper box ended the week at 52 which puts it in danger of falling back below its midline at 50. That would signal that the market uptrend is losing momentum. Its daily MACD lines in the middle box are still positive. But the declining purple trendline overlaid on the MACD histogram bars (which measure the spread between the two MACD lines) suggests that upward momentum may be slowing there as well. If stocks did peak this week, the next question is how much of their spring rebound might they retrace.
POTENTIAL SUPPORT LEVELS... Chart 2 shows some potential support (and retracement levels) that could be tested by the S&P 500. Chart 2 shows the 20- and 50-day moving averages below the SPX which are likely to be tested shortly. If they don't hold, the next support likely to be tested is its late-April intra-day low at 2727 or its late March peak at 2641. That lower level would also coincide closely with a test of its 38% Fibonnaci retracement line measured from its late March low to its late April peak. If they don't hold, a deeper pullback to its early April low at 2447 would correspond closely to its 62% retracement line. Those potential support levels assume that stocks could retrace a portion of their spring rally as part of a potential bottoming process. And don't rule out the possibility of a retest of their late March low. My immediate concern, however, is how any stock pullback deals with tests of some of those underlying support levels.
WATCHING THE NASDAQ...The Nasdaq hasled the spring rebound in the rest of the market and is the only major index to trade above its 200-day moving average. And it may also be looking a little toppy. The daily bars in Chart 3 show the Invesco QQQ Trust losing nearly -3% on Friday to help lead the market lower at week's end. The QQQ includes the 100 biggest stocks in the Nasdaq market. The chart shows the QQQ backing off from potential chart resistance along its early March high at 219. That's a logical chart spot to expect some profit-taking. In addition, the uptrend in its 14-day RSI line in the upper box appears to be stalling. And its MACD histogram bars are contracting which suggests some loss of upside momentum. The big test of course will be the ability of the QQQ to stay above its 200-day moving average (red arrow). Weaker semiconductor stocks may put some added downside pressure on the QQQ.
CHIP STOCKS SELL OFF IN HEAVY TRADING...Chart 4 shows the PHLX Semiconductor iShares (SOXX) falling nearly -5% on Friday and in heavy trading. It also closed just below its 200-day line. Chip stocks are a big part of the technology sector and their direction can influence the direction of the Nasdaq market. So do the five biggest stocks in the QQQ which account for 38% of the Nasdaq market (and 20% of the S&P 500). They include Microsoft, Apple, Amazon, Alphabet, and Facebook. Four of them saw some selling on Friday, but remain above their moving average lines. Amazon, however, tumbled on Friday after a weak first quarter profit report.
AMAZON IS THE FIRST TO DROP... Chart 5 shows Amazon.com (AMZN) losing -7% Friday and in heavy trading. The stock is threatening its late April low which could lead to a test of its February intra-day peak at 2185. In addition, its 14-day RSI line (upper box) is pulling back from the 70 level after failing to confirm Thursday's price high. And its daily MACD histogram bars have turned negative (red circle). That's the first of the big five Nasdaq stocks to come under heavy selling pressure. It remains to be seen if the other four are able maintain their current uptrends.
