Maybe it’s time to lock in some profits after the stock market’s run-up to record highs. Several chart analysts are worried stocks are showing signs of exhaustion after their recent rally. All three major averages have climbed for 12 out of the last 13 weeks, and the S & P 500 on Friday closed at a record high for a second week in a row. But the market may be in for some challenges this week with big tech earnings, a Federal Reserve meeting and major economic reports on deck, all of which have the potential to roil markets that are already flashing some internal indicators of weakness. In particular, mega-cap tech companies such as Alphabet , Apple , Amazon , Meta Platforms and Microsoft are all set to report this week, just as many tech stocks are showing signs of exhaustion, some chart analysts pointed out. .SPX 1Y mountain SPX in past year “Clearly upside momentum is strong, but it’s starting to show some exhaustion signals here,” Jonathan Krinsky, chief market technician at BTIG, wrote Sunday. “With 38% of SPX reporting this week, along with the FOMC meeting, a pause/pullback here is well overdue.” “Front and center of upside momentum is tech/semis. Even there, however, we started to see some cracks last week as upside exhaustion also showed itself,” Krinsky added. “Next week sees a significant amount of the Nasdaq 100 report EPS. Given the run into the prints that many names have had, the bar is quite high to keep things going.” Other technical analysts had a similar take. JC O’Hara, chief market technician at Roth MKM, wrote: “This persistence of gains is rare, and we are seeing signs that leadership is feeling exhaustion.” “The Nasdaq 100 finished higher for the third consecutive week. However, when we view the chart, we find early signs of bullish exhaustion,” O’Hara wrote. “If the Bears choose to attack, it will come from the help of poor earnings from the larger cap technology stocks set to report this week.” The Nasdaq-100, which features the 100-largest stocks in the Nasdaq Composite, reached all-time highs this month as well. It’s up 3% year to date after skyrocketing 53.8%. .NDX 1Y mountain Nasdaq-100 rally in past 12 months Elsewhere, Rob Ginsberg, managing director at Wolfe Research, noted semiconductor stocks, which he considers a clue into market performance, are starting to look overbought. The VanEck Semiconductor ETF (SMH) is flashing a relative strength index (RSI) of 79, a level which Ginsberg said has signaled near-term peaks in the past. A reading above 70 is considered overbought, while below 30 is considered oversold. “SMH sits deeply overbought. While that’s often a positive sign of strong momentum, there comes a point when its no longer a ‘good thing’,” Ginsberg wrote. “Perhaps its not the worst idea to take some profits at these levels?” Even more bullish market observers such as Oppenheimer’s Ari Wald think equities are in some trouble over the near term, citing the rally’s failure to extend to small-cap stocks. While the major averages are all higher in 2024, the Russell 2000 is down more than 2% for the year. The small-cap index has failed to break out past 2,000, and was last around 1,978. “From a trading basis, lethargic internal behavior suggests the bull cycle is due for a breather,” Wald wrote on Saturday. “Specifically, the Russell 2000’s failure to confirm the S & P 500’s new cycle high can be considered a near-term concern because it indicates strength in the cap-weighted benchmark is masking relatively weaker action in smaller-capitalized stocks.” “While the Russell 2000 is still upholding support and positioned to break through two-year resistance over the coming months, it’s a matter of respecting the fact the small-cap gauge failed to maintain its December breakout and is back in its base—this is where we see relative risk.” Still, Wald said he expects the small-cap breakout will come over the coming months. Until then, he expects the S & P 500 will fall back to about 4,800. The broader index was last at about 4,890.
This story originally appeared on CNBC
