iShares Expanded Tech-Software Sector ETF (IGV) & Invesco Food & Beverage ETF (PBJ)

Stock markets have started to rebound this week. Monday and Tuesday saw an overall down month for October finish with a couple of decently positive days which could be attributed to a combination of window dressing, short covering and bargain hunting ahead of month end. November started off positively yesterday with gains accelerating into the close following the Fed decision and Powell press conference.

The US central bank held its benchmark Fed Funds rate steady and there were no major surprises in the statement or press conference with Chair Powell leaving the door open both to more rate hikes and to potentially pausing as the fight against inflation continues. US Treasury yields backed off a bit on this slightly-less-hawkish-than-last-time hold.

Overseas markets continued to struggle with Canada, Australia, Germany, Japan, the UK and other countries remaining under pressure. Country declines have been more moderate so far this week and there have been a few moderate gains as well.

Looking at sectors, three of the 11 major industry groups posted gains last week, Financials, Utilities, and Industrials, suggesting some of the selling pressure against interest sensitive groups may be starting to ease a bit. The worst performing groups were Technology, Consumer Staples, and Health Care as defensives continue to struggle.

On balance, earnings reports continue to be positive for the most part, reflecting a robust summer economy. For the most part, markets have taken the results in stride with few companies staging big rallies on news, but disappointments continuing to spark selloffs. Following tonight’s results from Apple, we move past the peak of earnings season for US large cap companies.

Stateside reports next week are dominated by a large number of small cap and mid cap companies with the headliners being media giants Walt Disney and Warner Bros Discovery. Canada continues to move through the peak of earnings season with results due from senior mining and energy companies plus the life insurers including Suncor Energy, Manulife, Great West Life, Franco-Nevada, Tourmaline Oil, Constellation Software, Rogers Communications, Canadian Tire, and others.

There are still a number of notable economic reports on the way in the coming days including tomorrow’s North American employment reports, and Service PMI results from around the world. Next week is relatively quiet for data, headlined by trade numbers for the US, Canada and China.

In this edition of Equity Leaders Weekly, we look at what recent declines in the high-beta/cyclical software sector and the low-beta/defensive food sector are telling us about the breadth of the recent market selloff.

Technology stocks captured a lot of attention from investors and headlines for much of this year when things were going well. As equity markets have faltered and started to drop back in recent weeks, technology stocks have started to give back some of their recent gains as well.

Software stocks, represented here by the iShares Expanded Tech-Software ETF (IGV), started the year off strong with significant rallies in January-February and June-July. IGV peaked in August but through September and into early October, this appeared to be another pause within a bull trend similar to March-April.

Moving into November, it has become clearer that the software sector has come under distribution. A downward trend of lower highs has emerged and IGV has started to break down, completing bearish Triple Bottom and Spread Double Bottom breakdowns to signal a downturn.

Next potential downside tests appear near $311.55 based on previous column highs, then $300.00 where a round number and a horizontal count converge. Initial resistance on a rebound may appear near $344.15 based on a 3-box reversal.

One factor which suggests equity markets have been in a significant correction for the last several months is that outside of the Energy sector, there hasn’t really been anywhere else to hide. Defensive sectors have also struggled in recent weeks including Consumer Staples, Health Care, and Utilities (which have been hurt by rising treasury yields).

The Invesco Food & Beverage ETF (PBJ) provides an example of how Consumer Staples stocks have struggled. 2023 has been a particularly difficult year for the sector. PBJ actually peaked back in December of 2022, it failed to participate in the market rally of the first eight months of this year, and it has been under straight distribution since June without even a 3% or 3-box bounce.

Back in September, PBJ staged a bearish Double Bottom breakdown and even with stocks rebounding this week, it has remained under pressure. Yesterday, PBJ completed a bearish Spread Triple Bottom pattern to confirm the start of a new downtrend.

Initial downside support for PBJ appears near $37.50 based on a horizontal count, then near $33.35 where previous column highs and a 45-degree uptrend support line converge. Initial resistance on a bounce may appear in the $41.90 to $42.75 area where a 3-box reversal converges with previous column highs/lows.