While trading lows look near, lots of damage has been done
Key Takeaways
- Trends & momentum remain negative short-term for US Equity indices and SPX requires a move back over 4653 to expect this weakness is complete
- WTI Crude should be nearing support for a bounce starting next week which should help Energy recover
- Homebuilders remain a very strong technical group and should be favored.
Thursday’s rally, is similar to Wednesday’s bounce, failed to show sufficient strength to think a low is in. Overall, daily closes over 4653 will be necessary, and until then, this rally could still weaken further into next week. However, broader-based gauges of equities like the Value Line Geometric Average as well as the Russell 2k are now nearing support near summer lows where stabilization should occur. Given the extreme drop off in breadth in recent weeks, a monumental effort is necessary along with broad-based participation to have confidence.
WTI Crude has nearly reached initial support, but shape of the bounce will be important
WTI Crude has now been down the last five of six trading sessions and lower by six straight weeks. This area in the low $60’s is important support near August lows
Wave patterns are nearly complete on this initial pullback, and Ichimoku Support lies directly below. However, the shape of the bounce will be important as to whether this can move back to highs right away.
Momentum diverged negatively starting a couple months ago, but this is the first real price damage to confirm some of the negatively diverging MACD and RSI readings. Failure to make a clean five-wave advance off these lows in the low $60’s would be problematic to expecting a similar decline might lie in store for late December into January before Crude can bottom out.
Weakness in Energy is tactical and should prove short-lived only and is not a long-term bearish call. Energy technicals remain constructive long-term given the rally off the March 2020 lows.
Seasonally speaking, Energy remains in a difficult period and mean reversion might affect Energy negatively during December as leaders are sold and laggards rebound. For now, this first leg of the decline looks complete, so it’s worth considering buying dips for a rebound in the weeks to come.=
Homebuilders remain constructive
Weekly charts of ITB, the iShares US Home Construction ETF, have outperformed sharply in the last month and are pushing back to new all-time high territory.
This group is technically attractive to own during this seasonally bullish time and has largely avoided much of the technical damage being seen in other areas of the market.
Longs remain preferred Technically and BLDR, TREX, DHIH, AOS, LEN, are preferred within this space, while LOW and HD also are quite attractive as intermediate—term longs to favor and to buy dips if given the chance in the weeks to come.
