QQQ - Stock Indices Near Term Trend Is Up; Aerospace Stocks Leading (Technical Analysis)

2023-03-07 17:20:50 ET

Summary

• Stock indices closed the first week of March on a strong note. This tells me the near-term trend for stocks is likely higher.
• I previously wrote that the artificial intelligence sector was leading the stock market. This has been the case in the past few weeks.
• There is fresh emerging strength from the Aerospace/Aviation sector.

US indices near-term trend is up

US stock indices closed the week very strongly in the first week of March. The way in which they bounced higher from key inflection points tells me we are likely to see a sustained rally in risk assets in the next few weeks.

The S&P 500 ( SPY ) bounced higher after retesting the downtrend line (former resistance now turned support). A breakdown below this downtrend line would have soured the technical picture, but we have averted that scenario (for now).

Weekly Chart: SPY

The Nasdaq 100 ( QQQ ) bounced off the neckline of a mini base it broke out higher from, which is constructive.

Weekly Chart: QQQ

The Russell 2000 (IWM) is a better representation of the broad market. It managed to bounce off the neckline of the mini base it broke out higher from.

Weekly Chart: IWM

It is also notable that all three indices have made higher lows and higher highs, and are now trading above their 10, 20, and 50 weekly moving averages. This suggests that the near-term trend is up.

Stealth rally in Aerospace/Aviation

I previously wrote that the artificial intelligence sector was in good stead to take up the leadership baton if we are indeed in a new bull market.

One of the leading stocks I mentioned in the article was C3.ai ( AI ). I was impressed with the high levels of accumulation evident from the volume signatures in the stock, with dollar traded volume coming in between 26% to 100% of its market cap during some sessions.

The stock recently announced earnings and rose +33% on the day. Volume came in 4.4x above average, and two-thirds of the stock's market cap traded on that day. Such heavy volume is a sign of institutional interest, and I believe these are still early days for the sector as a whole.

Daily Chart: AI

There is new emerging strength in the Aerospace/Aviation sector, which is starting to throw up a few interesting names.

The space exploration ETF ( ARKX ) has only just broken out higher from a multi-month base. It has retested the breakout zone on a number of occasions, and the supports have held up.

Daily Chart: ARKX

Kratos Defense & Security Solutions ( KTOS ) is more a defense name, but it also provides satellite communication solutions. The stock has broken out from a multi-month base, and gapped up higher on earnings. I am waiting for this to settle down, before it becomes actionable.

Daily Chart: KTOS

Redwire ( RDW ) popped +48% on 15 Feb, taking it out of a multi-month base. There did not appear to be any obvious catalyst. However, institutional buying was most likely involved, with 25% of its market cap trading hands that day. The stock is now tightening up and looks likely to make the next leg higher.

Daily Chart: RDW

Terran Orbital ( LLAP ) gapped up higher on massive volume after winning a contract to build satellites. I am waiting for the stock to settle down and consolidate.

Daily Chart: LLAP

3D printing stocks appear to be in vogue too, perhaps as some sensitive satellite/aerospace parts require the precision manufacturing of 3D printers. Desktop Metal ( DM ) broke out of a multi-month base after beating earnings expectations. I am waiting for this to consolidate.

Daily Chart: DM

For further details see: