Technical Strategy Video (Recorded Friday, October 8th):
Key Takeaways
- Energy and Financials have both broken out to new all-time highs
- Breadth has improved given this past week’s bounce
- Mass Pressure index shows a bottoming out and rally into mid-November
- Equity indices like SPX, NDX, and DJIA remain trending down from early September and have not yet given the “all-clear” signal; However, weakness in the next week should prove to be short-lived and provide buying opportunities
Energy remains the key area of focus, not only within the Commodity complex, but as an important area to overweight as XLE has just joined WTI Crude in breaking out to the highest levels of the year. Additional strength looks likely to 58-58.50 in XLE with areas near 61 being strong resistance.
Financials also is an important sector to favor technically with yields pushing higher
Many of the Investment bank gains have stalled out, while Commercial and Regional banks have been outperforming lately. Insurance is also an area to favor within Financials, and as this chart below shows, KIE, the SPDR S&P Insurance ETF, is set to close at the highest levels in at least three months. Bottom line, given bullish thoughts on TNX pushing higher to 1.75-1.80%, I feel the entire Financials space should also be overweighted along with Energy.
Breadth and momentum have improved this past week on the bounce
- Percentage of stocks above their 50-day moving average (m.a.) has nearly doubled from two weeks ago and now stands at 41%
- Percentage of stocks above their 200-day m.a. has risen to 66.9%, also a meaningful jump
- Momentum gauges like MACD on daily charts have crossed over back to positive territory.
- Conclusion: Even if Stock indices show any kind of downside in the next couple weeks, it’s highly likely that breadth and momentum have bottomed for October and likely show positive divergence on equity weakness. Thus, any further pullbacks in Stock indices likely will prove short-lived given this improvement and should push higher into mid-November.
Structurally, US Market indices still have work to do, before trends are positive: SPX, NDX and DJIA have all risen to test meaningful resistance at the downtrend from early September. It’s thought that this should be important heading into next week and until S&P gets above 4421 at a minimum, (while above 4465 for more conviction) trends remain short-term negative and it’s still difficult technically to have a positive bias.
The Mass Pressure index cycle composite (Made popular by W.D. Gann, turns back higher in October – When using the Mass Pressure Index Cycle composite using 10, 20, 30, 40, and 60 year cycles combined in one composite, this has proven quite accurate this far and for now US Equities have behaved. The equal-weighted Value Line Geometric average made its highest weekly close for 2021 back in June and has consolidated sideways thus far, exactly how the composite has shown. The downward bias in the composite through September also materialized in US indices with negative returns in SPX, NASDAQ, DJIA and Value Line in the month of September. However, this turns positive in early October, and pushes up into mid-November. This is worth keeping an eye on, and suggests that any downward pressure for US indices over the next 1-2 weeks in the historically volatile month of October likely proves short-lived and might give way to strength into mid-November.
