Short-term US Equity trends look to have turned back higher last Friday following a choppy period of consolidation in recent weeks. Despite a plethora of bad news domestically and overseas, US Economic data and good earnings have helped markets largely ignore the factors that normally might be expected to ramp up volatility. Technical structure and breadth have improved markedly in recent weeks, while sentiment is not yet bullish enough to think Stock indices might peak out. While the back half of October might prove more volatile than the first half, last Friday’s rally looks likely to lead prices back to new highs for S&P and DJIA and could result in NASDAQ challenging its former all-time highs. Bottom line, Equities remain in great shape, and as discussed yesterday, I expect that Equities bottom into the Rosh Hashanah holiday period and likely rally up into 10/12 this year.
Over the last few weeks we’ve seen bounces in WTI Crude, US Treasury yields, US Dollar as well as FXI which have all moved quickly higher following intermediate-term declines.
It’s my opinion that all of these rallies should be nearing resistance, making these specific assets/sectors a difficult risk/reward for many who are betting on continued upside. Most should be nearing resistance which should limit their upside progress over the next 1-2 weeks before they turn back lower.
I’ll share thoughts in chart form below, but initially its right to focus on S&P 500 which made a minor pullback on Monday yet failed to show much deterioration.
As shown below, October lows at 5674 remain an important point technically and should not be breached without postponing the rally a bit longer. Meanwhile, the ability to exceed 5753 should allow for upside acceleration which I think is important to recoup expecting a linear advance back above 5800.
S&P 500 Index
As discussed late last week, a final push to new highs is likely ongoing and started last Friday. However, it will be important to concentrate on breadth in the next 1-2 weeks along with momentum divergences, sentiment, and DeMark exhaustion, as all of these might come together to show a confluence of price and time-based resistance starting in about two weeks. For now, the chart pattern looks quite bullish and a move back to new highs seems forthcoming.
Crude oil looks to be at/near resistance after this bounce
As discussed last week, despite WTI Crude bouncing on geopolitical upheaval, the underlying technical and many fundamental reasons suggest that this rally might not have too much traction.
Specifically, the following remain technical concerns:
- Equal-weighted Energy broke down to multi-year lows in September, and the resulting bounce did not occur on any weekly DeMark exhaustion.
- WTI Crude oil fell to the lowest levels in 18 months into early September. This turned intermediate-term structure bearish. Its recent bounce has failed to recoup the trendline that was broken and price has neared Ichimoku resistance.
- OIH N/A% fell to new 18-month lows, while both XOP 0.58% and XLE 0.24% weakened to the lowest levels since early 2024. This caused monthly MACD to turn negative, and it remains bearish.
- Cycle composite for WTI Crude calls for Crude to fall into next Summer, which is seen on both daily and weekly Crude composites.
- Seasonality is more bearish for WTI Crude in the back half of most years given supply/demand characteristics, and the average return has been negative in October, November, and December over the last 10 years.
Without delving into the fundamental supply/demand issues and how the results of the upcoming Presidential election might affect WTI Crude oil supply, it’s right to consider Energy and WTI Crude oil “Underweights” technically speaking. My technical analysis on Crude shows that price might be vulnerable to selling off down to $50 or lower into next year.
Light Crude Oil Futures
TNX looks to be nearing overhead resistance
US Treasury yields have been rising across the curve as Economic data has pleasantly surprised over the last month. The Citigroup Economic Surprise index shows that Economic data has exceeded expectations for the last few months, and yields have begun to turn higher sharply.
As seen below, ^TNX 1.13% has reclaimed the psychologically important 4.00% level, but looks unlikely to make much further headway before stalling and turning back lower.
My area of resistance at this point comes in near 4.08%-4.16% as a zone which has lots of technical importance and should cause a reversal in this bounce. Not only do traditional downtrend lines intersect at levels just above, but Ichimoku resistance also lies near this 4.16% area.
Following a stalling out, which might occur anytime over the next 3-5 trading days, TNX should begin to turn back lower to undercut September lows.
10-Year Treasury Note
Utilities look to be growing closer to resistance; Yet, one final push looks likely into mid-to-late October
Another area of technical importance concerns the Utilities, which have silently outperformed all other S&P sectors over the last three-month and Year-to-Date (YTD) basis, returning +19.02% and +26.62%, respectively (Equal-weighted Utilities ETF (RYU) returns through 10/4/24.)
This sector has moved up so rapidly that 94% of all the Stocks within S&P Utilities index now trade above their 50-day moving average. Monthly RSI (Relative Strength Index) readings on XLU -2.45% show a 64 currently, or the highest this momentum gauge has been since 2020.
However, relative charts help to put this recent outperformance into perspective. As seen below, the ratio chart of Utilities vs. SPX in Equal-weighted form (RYU vs RSP -0.78% ) started to accelerate this past Spring following a breakout of a downtrend vs. SPX that started in late 2022.
As of last week, the first signs of possible exhaustion cropped up on weekly Symbolik charts, showing both TD Sequential and TD Combo “13 Countdown” signals, a weekly contrarian exhaustion signal.
While the weekly TD Setup count requires another 2-3 weeks of gains before this would trigger an official TD Sell Setup, this sector looks to be “on the radar” so to speak for evidence of peaking out.
I anticipate that strength into late October would result in Utilities lining up to show greater warning signs from a contrarian and momentum standpoint that might make this sector a poor risk/reward. At present, with no exhaustion signals having been confirmed and a relative uptrend vs. S&P 500 still very much intact, I like Utilities to push even higher this month before a possible trend reversal. Trends remain in good shape at present.
NYSEMKT:RSPU – NYSEMKT:RSP
China’s Large-cap Equity ETF (FXI 3.22% ) looks to be close to resistance
Following a 45% rally over the last 20 trading sessions, or more than 2% on average per day, FXI finally looks to be nearing an area that is important technically.
Over the last few weeks, I’ve discussed 37.85 as having importance, for two reasons:
- It represents an important 50% retracement zone of the decline from 2021
- Lengthy former uptrend line connecting lows going back since 2007 intersects near this level.
A final reason to suggest this might be getting close involves the formation of DeMark’s counter-trend exhaustion indicators as well, not dissimilar from what’s being shown on the Utilities ratio chart. (TD Combo indicator just appeared today on daily charts, while TD Sequential could possibly materialize in four trading days.)
I didn’t mention overbought conditions as being a technical reason given that timing trend reversals based on momentum can be extraordinarily difficult. However, it is worth sharing that weekly RSI is now over 80. (out of a possible 100).
Bottom line, a plethora of technical based resistance in price and time suggests that FXI could be a poor risk/reward for shorter-term investors upon exceeding $37. While it’s always correct to give trend following the most emphasis on making decisions, I would consider this a poor risk/reward upon FXI breaking its rising 5-day moving average (which currently lies right above 35). As always, it’s wise to utilize risk management and manage positions according to one’s own timeframe and risk tolerance. However, there’s enough proof for me to suggest that above $37 might not represent the best risk/reward opportunity for investors with a timeframe of less than six months.
iShares China Large-Cap ETF
Source: TradingView
