January 9, 2022:
The markets last week gave an emphatic answer to last week’s question on growth versus value. The S&P Growth Index (IGX) was down 4.5% while the S&P Value Index (IVX) rose 1%. The market declines last week surprised some as the S&P 500 made a new closing high on Monday.
The S&P 500 was down 1.9% for the week but that was not as bad as the 4.5% drop in the tech-heavy Nasdaq 100 Index or the 2.9% decline in the iShares Russell 2000. All the markets, even the SPDR Gold Trust, were lower for the week but the Dow Jones Industrial Average held up better as it was down just 0.3%. The market internals were negative for the week with 2084 issues declining with 1489 advancing issues.
The Invesco QQQ Trust (QQQ) QQQ +0.3% ended 2021 by forming a doji. Last week’s close below the doji low triggered a weekly doji sell signal. The close was below the 20 week EMA at $381.84 with support from the 2021 lows, line b, now at $373.28. This is 1.7% below Friday’s close with the weekly starc- band at $357.63. The October low was $350.32, line a, which is 7.7% below the close. There is resistance now at $393.30 and the monthly pivot.
The Nasdaq 100 Advance/Decline line was lower last week but closed a few points above its WMA. There is A/D line support going back to 2020 at line d with further at line c. The weekly on-balance-volume (OBV) is negative as it has turned down from its WMA with the next strong support at line e. The daily A/D line (not shown) is below its WMA and is negative. The daily starc- bands were exceeded over the last three days of last week so QQQ is in a high-risk sell area which makes a rebound likely.
Of course, the bond market got as much attention last week as the stock market. The yield on the 10 Year T-Note exceeded my key resistance level at 1.600 area early in the week and eventually reached a high of 1.801% on Friday. That was the highest reading since January 2020.
This Wednesday’s CPI report and Thursday’s PPI report are going to get the bond market’s attention as will the start of earnings season on Friday. For the week the Energy Sector (XLE) XLE -0.6% led the way up 10.5% while the Financial Sector (XLF) XLF +0.1% was up 5.4%. On the downside, the Technology Sector (XLK) XLK 0.0%, Health Care Sector (XLV) XLV +0.8%, and Real Estate Sector (XLRE) XLRE +1.6% were all down well over 4%.
The sharp declines in the QQQ and the growth stocks have many wondering how much lower can the technology stocks go? The daily chart of Technology Select (XLK) shows the sharp slide from the December 28th high of $177.04 to last week’s low of $164.84. There is support from the December lows at $164.36 and $163.05. The September high at $160.13, line a, is 3.5% below the close.
The daily RS dropped below its WMA three days after the high and then violated the support at line b. The volume peaked in late November and has since formed lower highs, line a, which suggests that the selling pressure may be decreasing. The OBV formed two negative divergences in December as it peaked in November. As XLK was making its high in late December the OBV stayed below its declining WMA.
What about the largest and most widely held technology stocks? Microsoft Corp MSFT +0.7%. (MSFT) was down 6.6% last week which also triggered a weekly doji sell signal. It had declined 10.1% from the November high of $349.67 and is now well below the monthly pivot at $332.62. There is converging support, lines a and c, in the $304-$305 area. The weekly starc- band at $294.05 is 6.3% below the close and there is even stronger support at $279.50, line b.
The relative performance (RS) dropped further below its WMA last week indicating that MSFT is no longer leading the S&P 500. The OBV closed barely above its WMA and has stronger support at line c. MSFT formed a doji on Friday after dropping below the daily starc- band for several days. The declining 20 day EMA is at $328.91.
NVIDIA NVDA +0.8% (NVDA) was an analysts favorite and star performer in 2021 as it gained 125%. NVDA peaked at $346.43 in late November after trading above its weekly starc+ band for five weeks. It closed last week at $272.47 and is down 21.4% from its high. NVDA closed below the monthly pivot at $299.48. The rising 20 week EMA is at $264.15 with further support at $233.15 and $230.36, lines a and b.
Last week the RS dropped below its WMA for the first time since May 2021 and looks ready to test the support at line c. The OBV dropped below its WMA in the middle of December and is now in a clear downtrend. The daily studies (not shown) are negative and show no signs of bottoming, but NVDA did close 6.7% below its 20 day EMA at $292.03 and is therefore oversold.
Not all large tech stocks look negative after last week’s action. Tech giant Apple Inc AAPL 0.0%. (AAPL) reached a valuation of over $3 trillion last week. It has been strong after reaching a November low of $147.58 as it had a high of $182.94 last Tuesday. It closed the week at $172.17 which was below the prior week’s doji low of $177.07 so a weekly doji sell signal was generated. The close was below the monthly pivot at $172.50 with the monthly S1 support level at $162.87. The rising 20 week EMA is 7.5% below the close at $159.11.
The weekly relative performance is positive as it is still well above its WMA and the support at line b. The volume did increase last week but the OBV made a new high a week ago and is still above its rising WMA.
The daily analysis and the extent of the selling last week does favor a rebound this week, but the inflation data could stall a rebound. After a rally more selling is likely but given the positive readings on the economy, I would expect the decline to be over by late January or early February. A pullback in the value stocks and ETFs should be used to add to positions established early last week.
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