QQQ - Pullback Expected Leading Stocks Not Acting Well (Technical Analysis)

Summary

• I expect some pullback or consolidation in the stock market in the near term.
• Leading stocks such as Enphase are not breaking out successfully. This tells me that the market is not in good health.
• Notable charts that caught my eye: uranium potentially on verge of big breakdown; commodity spot prices showing weakness.

After a few weeks of strong rallies in risk assets, many key markets are now starting to test important levels. On balance of probability, I think we could see the markets pulling back in the near term.

First up, the S&P 500 Index ( SPY ) retested the 200-day moving average (in brown) and pulled back. This moving average also served as crucial resistance back when the index put in a top in August.

Also, notice how the index rallied strongly after Powell's speech on 30 November? The index has given back all of those gains, with price undercutting the low of that day. That is not a good sign.

Daily Chart: SPY

What gives me encouragement, however, is that the SPY has built two mini bases (as annotated) in close proximity of each other. This tells me that the 360-370 levels are providing decent support. I will be watching how price performs if the SPY dips back to those levels.

A disclaimer before I move on to the next chart - the stock market is a collection of stocks. Hence, I watch how the indices are performing, but I am cognizant that the indices are dominated by a small handful of large-cap stocks. As such, I look for stocks that are leading the market, and let their success / failure in following through higher dictate my level of conservatism in trading.

For example, Enphase Energy, Inc. ( ENPH ) is one of the leading stocks in the solar sector, which had been performing well. ENPH had been building a large base, and broke out strongly from it on 2 December. However, notice how price slam-dunked back below the pivot point two days later?

Daily Chart: ENPH

This price feedback is invaluable, as it shows that leading stocks are having trouble breaking out successfully. In a bull market, this breakout would most probably have worked. As such, I am conservative until leaders like ENPH start to breakout successfully.

One sector that really caught my eye with regards to the huge bearish pattern developing on the chart is uranium (Global X Uranium ETF ( URA ) and North Shore Global Uranium Mining ETF ( URNM )). The below URNM sector ETF has been building what looks like a massive multi-month distribution pattern since February 2021.

Using stage analysis, distribution tops are characterized by wild, volatile price ranges and high volume, as institutional money offload their positions. We can see a series of lower highs on the weekly chart, and price looks like it is fast approaching the pivotal neckline. Break below, and I think the bull market in uranium looks to be over.

Weekly Chart: URNM

The final chart that caught my eye is that of the commodity spot price index, Invesco DB Commodity Index Tracking ETF ( DBC ). Despite all the talk of higher inflation that is out of control, the index is actually breaking down from its range since July. This is indeed curious, and could lead the Federal Reserve to evaluate its rate hike trajectory if spot prices do break down.

Daily Chart: DBC

That is why I look to price to show me the way forward. If I listen to the news, I will hear the same narrative that the majority of market participants hear (and believe in). Under the surface, there is a divergence in this narrative and price action. Watching this space very closely.

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