Equity trends remain bullish but fragile as we reach the end of October. Stocks, Treasury yields, and the US Dollar look to all be close to beginning a corrective pullback, which likely starts in early November but should arguably prove short-lived and not the start of a larger decline. Minor pullback attempts this week have failed to do much damage but should ultimately result in 5-7% declines in US Equities for the month of November, in my view. While the intermediate-term bullish thesis remains very much intact, it’s doubtful that US Equities will continue to push up into and post-election without any consolidation. Risk/reward seems poor in the short run, and SPX seems unlikely to exceed 6000 right away but could find initial resistance near 5900-5935. Meanwhile, QQQ should arguably find resistance at 503-505.
While I do harbor concerns about the next 4-6 weeks, Thursday’s decline failed to make sufficient damage to claim that a larger selloff has begun, and prices on both NDX and SPX look to be near support, which likely could carry indices higher into US Election before any November damage.
A few relevant points:
- SPX, NASDAQ have traded down to test lower Bollinger band
- Sentiment has retreated from overly speculative levels over the past week
- Price weakness is holding right above key support for SPX near this past July highs and has not violated Ichimoku Cloud.
- Hourly RSI on SPX nosedived to the most oversold reading in months
- Seasonality turns more bullish the first week of November
- Both AAPL and also NVDA are down near important support, and both INTC and AMZN look to be trading higher after Thursday’s earnings
Thus, despite the low breadth readings, which have been ongoing for the past couple of weeks, I feel the next few weeks will be tricky and volatile, which means a tough tape for bulls and bears alike. Ideally, S&P bottoms at current levels or levels just below (5670-5700) to turn back higher above 5900.
As shown below, SPX is down near the lower end of its daily Bollinger band along with Ichimoku Cloud and also former peaks from July and August. Thus, while momentum concerns remain an ongoing problem, there could be an attempt to bottom Friday and/or next Monday as the new month gets underway. Moreover, SPX and QQQ might push higher, which would result in a completed five-wave advance from early August. At present, this selloff from mid-October appears like a three-wave decline only and looks close to support.
S&P 500 Index
Technology vs. Equal-weighted SPX has reached lows of the recent range and now reflecting TD Sequential “buys”
One interesting phenomenon on Thursday’s abnormal weakness in Tech is that it produces a DeMark-related “13 Countdown” signal (“buy”) which happens in a downtrend.
This very well could help technology start to claw back higher following weakness during the latter part of this week.
Given that charts of AAPL -1.43% and AMZN 1.13% show prices down to attractive levels while Semiconductor laggards like INTC 6.77% have bounced sharply after-hours Thursday following earnings, this could provide a possible spark to Technology Friday after a very poor showing.
I like owning Large-cap Technology, given the last few days of weakness as part of a current 2.5-month range. This sector likely could outperform after the election next week, but it still looks like a technical overweight despite recent choppiness.
The chart below highlights the ratio chart of Equal-weighted Technology ETF (Invesco- RYT) vs. Invesco’s Equal-weighted S&P 500 ETF (RSP -0.99% ). While technology has been understandably choppy this week, with early gains having been given back Wednesday and Thursday, it’s hard to make the case that Tech isn’t attractive given the lack of deterioration.
RSPT/RSP
This slide-in Equal-weighted SPX reinforces the Cap-weighted SPX as the one to favor.
While an eventual broad-based rally could be possible post-Election, I suspect that might turn out to be a December-January event, not something which should be kicking off just yet.
The deterioration in Equal-weighted SPX, which many investors have experienced over the last two weeks, clearly demonstrated the weakness that the Cyclicals have demonstrated recently.
SPX’s 1-month return is +0.89% vs. -0.54% for RSP -0.99% .
SPX’s 3-month return is +6.94% vs. +4.33% for RSP.
SPX’s YTD return is +21.88% vs. 12.92% for RSP.
Literally, every time frame seems to favor better relative strength out of SPX vs trying to favor RSP.
This relative ratio chart of ^SPX -1.93% vs. RSP -0.99% in ratio form since 2020 further serves to reinforce this idea.
Following a sharp move higher, which broke out above 2020 highs this Spring, there was a brief one-month decline in relative performance of SPX to RSP -0.99% (shown below).
However, this held the ongoing uptrend from 2023 and has since begun to turn back higher.
Overall, until/unless this trend starts to waver and ultimately give way, I believe it’s going to be better to favor SPX and the large-cap Technology that goes along with that.
I’ll revisit this chart when it’s time, but for now, the chances that an Equal-weighted basket outperforms SPX still look premature.
SPY/RSP
AAPL pullback hasn’t done much damage to its Triangle
AAPL’s weakness ahead of earnings likely makes this an attractive risk/reward as it’s dropped roughly $10 in the last two weeks following its retest of prior peaks of just over $237.
These ascending triangle patterns normally are resolved by upside breakouts but aren’t always easy to time ahead of when they actually achieve this breakout move.
This recent weakness in AAPL has undercut last week’s lows in a likely three-wave ABC type move before it goes higher.
Key support should materialize near $221-$223 and make AAPL appealing to own on weakness.
Only on a break of September intra-day lows of $213.92 would this likely postpone a move higher, and for now this pattern does not appear damaged.
AAPL remains the most important of any of the SPX names to monitor, given that it’s 7-9% within SPX and QQQ, and the pattern it’s carved out since July is constructive.
While this week’s minor churning might lead to a bit more weakness into Friday, I’m skeptical that a larger breakdown is underway.
Movement back to new all-time highs looks likely for AAPL.
Apple
Is AMZN guilty of the same false breakout as MSFT?
Similar to MSFT’s false breakout ahead of earnings, AMZN looks to have retreated as well following a sharp pullback in Technology on Thursday.
While the MSFT move looked to be a short-term negative, it didn’t violate larger support.
AMZN also reversed course but remains within a triangle pattern and is expected to break out to the upside, given how these symmetrical triangle patterns normally work.
AMZN looks excellent technically on weekly charts following the recent three-month consolidation near where this stock peaked out in 2021. I expect AMZN to push back above $195 to test $200 into November, and this might get underway following its Earnings report.
Amazon
