Cycles along with geopolitical conflict suggest Gold strength
- SPX could meet resistance just above 4415 into end of week, but should prove temporary
- Gold cycle composite shows a positive slope into year-end
- SPX 80-day cycle shows an upward bias into early November before weakness sets in
US Equity markets technically look to have bottomed and are slowly progressing off early October lows. Both US Dollar along with Treasury yields have backed off in recent days following last weekend’s attack on Israel. The expansion in breadth and broad-based nature of many lagging sectors turning higher to break out of 1-3 month downtrends in recent days looks constructive technically, and lends support to a further October rally.
Treasury yields and US Dollar have continued their recent descent this week, which given recent correlation trends should further fuel a stock rally in US stocks. Many formerly deteriorating sectors have begun to stabilize and turn higher in a fashion that makes some mean reversion likely this month.
Notably, Regional Banks, Transportation stocks, Consumer Discretionary as well as Small and Mid-cap issues look likely to show absolute strength in October following a difficult period in August and September.
Technically it’s not wrong to say that the pattern and breadth of this recent advance has been bullish over the past few days. The impulsive manner of this week’s advance managed to exceed former August lows at 4336 and has done so on an expansion of breadth. Structurally this is a very good sign and goes a long way towards thinking the lows for October were made last Tuesday, 10/3.
Near-term resistance might materialize initially near the following SPX resistance zones:
SPX-4417-4426, 4463, and then 4541, which lines up near early September peaks.
While any push up to resistance at 4417-4426 might require consolidation, it’s not suspected that this proves severe and shouldn’t give up more than 50% of the rally from 10/3 lows.
Thus, if SPX pushes up to 4417-26 into Friday, it might be likely that this area causes some stalling out and short-term consolidation back down to SPX-4321-4346.
4426 lies just above the 61.8% Fibonacci area of the entire decline from late July and also represents an important Gann level based on the 10/3 low close of 4229.46.
Overall, I suspect that SPX weakness would prove short-lived if/when it occurs, and a long bias remains preferred, expecting higher prices into late October/early November.
Chinese Equities along with many Emerging market Equities should press higher as US Dollar falls
China’s Large-Cap ETF, FXI 0.58% , made a similar breakout which was seen in many US Equity sectors and Style-based ETF’s on Wednesday (10/10)
While I suspect a rally up to $29.50-$30 is likely for FXI, it will take more to expect that a new intermediate-term bullish rally is underway which might be able to help Chinese Equities break out of their consolidation patterns from January of this year.
To have confidence that a meaningful advance is getting underway, it’s necessary for FXI to exceed 7/30/23 peaks at $30.54. This would allow for an intermediate-term rally to commence up to $37.75-$38.25, with an additional resistance zone found at $42-$43.
Overall, I do view Chinese Equities as being more attractive at this juncture, owing largely to US Dollar weakness combined with actual structural progress out of FXI itself. Bottom line, a long bias looks prudent into 2024.
However, I suspect that US Stocks likely still outperform Chinese stocks, and the ratio of SPY to FXI has not turned down in a fashion that would argue for outperformance out of China at this time.
Gold Cycle composite suggests strength in precious metals into Year-end
My cycle composite for Gold, which favors cycles of 228, 334, and 114 trading days, looks to be turning higher just at a time when gold has also pushed up on geopolitical risks rising.
Gold and Silver also began to turn higher as the US Dollar rolled over, something I discussed in recent weeks.
Overall, Gold and Silver are attractive for rallies into year-end, in my view, technically.
The ability to recoup $1890 in spot Gold should help Gold rally to 1950 initially. Additionally, any move over 1950 would help to jumpstart a quicker advance back to new all-time highs which might temporarily stop near 2100.
Overall, given the Dollar rolling over along with yields at a time when geopolitical risks are rising, Gold and Gold stocks look attractive on a 2-3 month basis for gains.
I’ll discuss what’s in store for 2024 in my year-end Annual Forecast for next year. At present, the metals trade looks far more appealing following its recent success in stabilizing and turning higher.
SPX 80-day cycle looks to have turned up; Higher bias until early November
The one cycle for S&P 500 that seems to have worked better than most in recent years has been the 80-day trading day cycle.
This correctly pinpointed lows last June and October along with peaks last Spring, Fall, and a peak this past July near the highs.
The most recent turn happened in the final week of September which came within a few days of SPX bottoming on 10/3/23.
If this composite continues to work well on a short-term basis, the next swing turn should happen during the first week of November, which could be a High for SPX.
The bias would then be for weakness in November into late November/early December ahead of a rally back to highs into year-end.
