S&P 500 Index (SPX.I) & iShares Semiconductor ETF (SOXX)

It has been another up and down week for equites around the world, featuring a number of mixed signals. Day to day sentiment has been influenced by the chatter of ongoing negotiations over the US debt ceiling, along with earnings reports from US retailers and Canadian Banks.

With the exception of home improvement retailers, US retailer earnings have been neutral to positive with Walmart beating expectations helping to support the sector. It does appear that consumers are starting to shift their spending away from the home to other areas. Initial Canadian bank earnings were weaker than expected reflecting general softness across business lines, and loan loss provisions appear to be on the rise again. On the bullish side, both of the banks that reported on Wednesday raised their dividends, suggesting a somewhat positive outlook from management. The overall trend of late May appears to be neutral with many index and sector charts essentially in consolidation patterns. Mean reversions also appear to be on the menu. Some markets which had been relatively stronger lately including European indices and US homebuilders have rolled into minor corrections. Some markets which had been depressed recently, including US national and regional banks and energy stocks have started to bounce back. With the exception of crude oil, which the Saudis have been trying to talk back up this week, commodities have been struggling, particularly grains and metals, which suggests some concern about the health of the global economy. On the other hand, defensive havens like gold and other precious metals have come under pressure, suggesting that fears about the health of the banking system are subsiding.



Over the coming week, the US has a long weekend and then approaches the June 1st deadline for a debt ceiling deal. Economic news is relatively light as is normal near month-end and earnings season continues to wind down with Canadian banks and US retailers headlining. June kicks off a week from today with PMI and employment data.

Last night Nvidia Corp* (NVDA) reported sales, earnings and guidance that all were well above market expectations, boosted by strong demand for chips used to support AI applications. This news has sent the shares soaring in premarket trading but it remains to be seen if this will have a wider influence on market action.

In this edition of Equity Leaders Weekly, we look at a recent breakout by the S&P 500 and at the semiconductor sector in the wake if Nvidia’s big earnings beat.

*Shares of Nvidia are held in some portfolios managed by SIA Wealth Management.

One running theme that has emerged over the last several editions of the Equity Leaders Weekly has been a resurgence in selected equity markets. In the case of International Equity indices, European markets have been strong but the recovery has expanded to other areas such as Japan and Latin America.

In the case of US Equity indices, the strongest technical patterns had emerged in indices with a higher sensitivity to certain groups including the S&P 100 Index (mega caps) and the NASDAQ Composite Index (technology and communications).The S&P 500 Index (SPX.I), the primary broad-based benchmark for US equities has been bottomed out back in October when a downtrend was contained by a long-term support line. Since then, the index has been on the rebound establishing a new uptrend of higher lows and positive pattern completions.

SPX.I recently spent three months in consolidation mode trading between 3,820 and 4,180. This month, SPX.I has broken out to the upside again, completing another bullish Double Top breakout and signaling the start of a new advance within the current uptrend, and indicating that despite recent political and banking upheavals, US stocks continue to climb a wall of worry.

Initial upside resistance appears near 4,310 based on a previous column high, followed by the 4,570 to 4,665 area where previous column highs cluster with vertical and horizontal counts. Initial support appears near 4,015 based on a 3-box reversal, then the 4,000 round number.

Since bottoming out in October along with the broad market, the iShares Semiconductor ETF (SOXX) has been steadily recovering lost ground advancing in a step pattern of rallies followed by periods of consolidation at consistently higher levels.

A mixed earnings season for chipmakers led to a downswing in April which triggered a bearish double bottom signal. This turned out, however to be a common pullback that was contained by support at the March low.

Moving into May, SOXX has been steadily bouncing back, rallying to retest its April high near $445.45 and triggering a bullish Low Pole Warning signal. The response to Nvidia’s strong earnings and guidance has the potential to put an exclamation mark on this rebound. A close above $445.45 would complete a bullish double top breakout and signal the start of a new rally phase.Next potential upside resistance on trend appears at previous column highs near $468.15, $487.15, which aligns with a horizontal count, and $501.90, just above the $500.00 round number. Initial support appears near $423.80 based on a 3-box reversal.