Afternoon Update

Yesterday we had 1-day overbought internals and the majority of stocks and sectors are lower today. Tech got the rotation in (day-to-day, not trend) today as suspected.

Most all of the cyclical sectors are entering consolidations with today’s pullbacks. This is just an example of what most cyclical sectors look like now.

Materials sector (15m) – Considering the run off January’s low, these sectors are due a breather.

Today was all about Tech and it was a great day on the back of the “Stargate” initiative and Netflix earnings, but you have to admit that the sector is at an interesting crossroads.

(30m) – No trend lines needed. I think you can see what I see. I will point out the broadening nature of the pattern (right angle broadening formation) of equal highs and lower lows. This pattern is one of the more chaotic and typically driven by news events and a loss of intuitional sponsorship, which has been the theme in Tech since the December window dressing was “volatized” by the more hawkish than expected December FOMC.

The 3C charts I’ve posted over the last 24 hours are leading me to believe that we’re at some kind of pivotal moment for the rally off the 2025 market low. I don’t know whether that’s consolidation with a bullish bias (cyclicals are leaning that way), or a right hand turn into a just as choppy and volatile environment (traders’ environment), but with a more lateral price trend, or a pivot to the downside. As I mentioned yesterday, I lean toward a more lateral, but choppy/volatile trend with bigger scribble like rallies and declines as we move through earnings season over the next couple of weeks.

Since my last 3C chart update this afternoon, I’m seeing a bit more action. It seems like the faster money traders (UPRO 3C signal) were leading the pack.

UPRO’s  (1m) divergence has sharpened.

SPY (1m) is starting to follow in its footsteps.

The Dow/DIA (1m) looks like it has been ready for a consolidation. That would be y baseline case, unless the divergence gets worse.

QQQ (1m) hasn’t changed much since the last update. Confirmation today isn’t spectacular, but it’s not a rally killer yet either.

IWM (1m) There were some hints that we get a rotation back to Small Caps and related groups tomorrow, but we just haven’t moved enough, so here too, I’d first assume consolidation.

For those who traded this bounce, in my opinion, now is the time to take some profits and/or tighten up trailing stops. If you want to give them enough room to see whether we get bullish consolidations in Small Caps/Cyclicals/Valve, I can’t argue with the logic, but I’d be watching for anything uglier than a consolidation signal.

There will be no 1-day oversold/overbought internals signals.

Lots of earnings after the close and before the open.

Looking ahead to Thursday, market participants receive the following economic data:

• 8:30 ET: Weekly Initial Claims (prior 217,000) and Continuing Claims (prior 1.859 mln)
• 10:30 ET: Weekly natural gas inventories (prior -258 bcf)
• 12:00 ET: Weekly crude oil inventories (prior -1.96 mln)