Stocks finished in mixed fashion on Friday, Jan. 14, with the indexes all plunging following the massive miss on the retail sales number. However, the indexes managed to rally back sharply into the close, resulting in the Invesco QQQ Trust (NASDAQ:QQQ)s finishing the day higher by around 60 bps and the SPX up around six bps.
S&P 500
The chart for the SPX is looking more and more like a diamond pattern. Additionally, the index has been directionless since Nov. 5, while a downtrend is starting to form, with a lower high, but to this point, there has been no lower low. There can’t be a downtrend until the S&P starts making lower lows. For that to happen, the index needs to fall below 4,500.
The RSI has been trending lower since that Nov. 5 timeframe, coupled with the price action, is a bearish divergence.
5-Yr TIP
The 5-yr TIP Rate (Real Yield) pushed up, closing at -1.27%. It is getting to a significant resistance level of around -1.22%. If that resistance level breaks at -1.22%, then there is nothing to stop the real yield from rising to -50 bps, which will inflect a world of hurt on equity markets.
This week’s premium commentary noted that the changes in real yields and the S&P 500 earnings yield are highly correlated over the last five years. The further back in time one goes, the weaker the correlation gets. But in recent times, this has impacted the S&P 500.
An increase in the 5-yr tip of nearly 70 bps would push the S&P 500 earnings yield from its current 4.8% to 5.5%. It doesn’t seem like much, but that would cause the PE (NTM) to rise from 20.8 to around 18.1, or 15% lower, or 3960.
Apple
We will have to be on head-and-shoulders watch this week for Apple (NASDAQ:AAPL). The volume profile and the RSI all support the bearish reversal pattern. For confirmation, the stock needs to break support at $167.
Intuitive Surgical
Intuitive Surgical (NASDAQ:ISRG) formed a triple top pattern and all but confirmed it on Friday when the stock gapped below a crucial support level at $311. The sell-off could be steep, too, with its potential fall back to $270 if the stock does not rebound over $311 in the next few days.
Altria
Altria Group (NYSE:MO) looks like it may be trying to break out. If that’s the case, this one could rally to around $58.50.
Netflix
Netflix (NASDAQ:NFLX) will raise prices, and this announcement comes ahead of the company’s quarterly results this week. In my experience with Netflix, they raise prices ahead of earnings when they have substantial subscriber growth numbers. That could be the case again this time.
This stock is oversold currently and is due for a bounce. It could be a big bounce, too, probably to around $580.
Roblox
Roblox (NYSE:RBLX) filled the gap at $77.70, and I’m hoping that is it for this one. I like this stock, and I bought it back in November. I have often likened this to Netflix in the early days, and I think it has that kind of growth potential. If the gap doesn’t prove to be support, a sturdy uptrend should also act as support.
Block
Block (NYSE:SQ) (formerly known as Square) broke support on Friday at $133, and believe it or not, there is a slight gap that never filled around $115. It sounds crazy, but that is probably where the stock is heading. I still think this is overvalued from a fundamental perspective too. They should have just left the name Square.
Biotech
If you can believe this, the SPDR® S&P Biotech ETF (NYSE:XBI) touched its February of 2020 levels before COVID. Not 2021, 2020. That is crazy. I hate to say it, but it has a gap to fill at $86, probably the ETF’s next stop.
Risk
Anyway, it is risk-off based on our Utilities Select Sector SPDR® Fund (NYSE:XLU)/XBI ratio, and based on that inverse Head And Shoulders pattern, it could be risk-off for a while.
