SPX, DJIA, Russell 2000, Dow Jones Transportation Average, and the Equal-weighted S&P 500 have all joined QQQ in breaking downtrends from late July peaks. NYSE breadth expanded to over 9/1 positive, making this a difficult bounce to fade right away. However, neither Treasury yields, nor the US Dollar have achieved larger breakdowns in existing uptrends. Overall, Tuesday’s post CPI gains certainly were a technical positive, but don’t necessarily indicate an uninterrupted move back to new high territory.
Bottom line, Tuesday looked to be a short-term “Game Changer”, at a time when indices had all rallied up to crucial Make-or-Break levels. Many who don’t utilize Technicals would likely view any 2% rise which happens into an equity market with bearish momentum as normally something to sell into. However, there were meaningful improvements in some formerly hard-hit sectors like Financials, Discretionary and Materials, which joined the strength in Technology on Tuesday.
(Specifically, given the improvements in Small-cap ETF IWM 0.15% and KRE 0.84% , the Regional Banking ETF, it’s difficult to suggest these are yet at resistance after Tuesday’s gains.)
Importantly for the Bulls, there was widespread buying, and both Advance/Decline along with volume into Advancing issues rose sharply. Given that prices closed above key levels and finished near the highs of the day on good volume, it’s doubtful that Tuesday’s move likely is reversed in any meaningful fashion until after Thanksgiving in my view.
However, I have been expecting a stallout into this week, not a breakout, as per recent comments, but did address last evening where this could prove wrong and lead to a possible short-term “Melt-Up”.
My own takeaway is that many of the negatives that I’ve listed in recent days will still be slow to improve right away, and cannot be immediately dismissed, even as I expect Equities likely move higher into next week.
I feel that the following are key points to reiterate despite my feeling that SPX likely rises up to 4561-4578 into the US Thanksgiving holiday, with a key time zone for trend change found near 11/27. Rallies into this time likely could find resistance and might backtrack into early December before the rally can continue.
Furthermore, while many factors were positive from a pure price perspective, it’s important to relay the following, which I feel still makes this bounce something which might not immediately eclipse 4600 in SPX:
- Elliott-wave patterns still show five wave declines from late July with the subsequent bounce being likely an ABC corrective move
- Cycle composites tend to show weakness into 1st or 2nd week of December before a rally back to new highs can commence
- US Dollar and Treasury yield trends are hovering just above support and can’t be said to have achieved meaningful intermediate-term technical trendline deterioration.
Treasury yields need to be watched carefully given recent negative correlation with Equities
Treasury yields have fallen sharply coinciding with additional evidence that the FOMC has in all likelihood concluded their rate hikes (My own interpretation based on Fed fund futures having lowered the possibility of a December 2023 hike to 1.5% and added 50 bp of cuts at the July 2024 meeting)
However, it’s hard to make the case that Treasury yields should retreat much further.
Technically speaking, Tuesday’s whopping decline of 20 bps in US Treasury 10-Year yields should have a bit more downside to 4.35-7%.
However, this area lies near a key uptrend line from last year as well as lining up with former Yield peaks from last October. Thus, two different technical areas of support are coming together which add to the importance of this area directly below constituting meaningful support.
Additionally, the Elliott-wave structure suggests that this Treasury bounce (Yield weakness) should be nearly complete and might start to exert upward pressure on yields starting in late November into December.
Overall, given the correlation of Treasuries to Equities, any hint of TNX turning back higher, would likely coincide with Equities pulling back to consolidate gains into early December. Note, this also would line up with cyclical composites from SPX showing that the 80-day trading day cycle should be nearing a peak.
Bottom line, my last cycle composite for TNX showed a possible peak in mid-December along with another one in February, which shows TNX pulling back sharply into next Summer. While I expect that the path of least resistance should be lower for yields throughout the first half of 2024, I cannot say with certainty that peaks in yields are in place just yet for 2023.
China could be the next breakout to watch as Xi/Biden meeting along with earnings might be important
This finally looks to be a time when Chinese Equities might start to work again
as the Ishares China Large-Cap ETF (FXI 1.38% ) has broken out a well-established downtrend right ahead of the historic Biden/Xi meeting.
Furthermore, US Dollar weakness has helped to add strength to many Emerging markets, which I touched on in last night’s report. Earnings wise- Tencent, JD, XPEV have earnings on Wednesday, while Alibaba (BABA 2.02% ) has earnings this Thursday.
Overall, the break of this existing downtrend looks positive, and any positive developments out of the upcoming meeting might finally help FXI to begin strengthening following numerous failed rally attempts.
This is attractive to me initially for 27.25-27.69 and then 28.35, right near Sept 2023 highs. This will take time to get from low-to-high, but cycles are bullish for 2024 and suspect this is a gradual bottoming out process. Chinese Tech ETF, KWEB 0.60% (Krane Shares CSI Internet ETF), has targets initially near 29-29.48, then 32 – FXI 1.38% , shown below, the iShares China Large cap ETF is likely to press higher this week, and my cycle composites show a bullish trend for Chinese Equities in 2024. Thus, a gradual bottoming out looks to be starting again.
QQQ now shows its first TD Sequential sell signal since last Fall’s lows on weekly charts
While not intentionally trying to show bearish news on a very bullish day, it is important to mention that the NASDAQ 100 Index ETF (QQQ 0.97% ) has just registered its first TD “13 Countdown exhaustion signal (not confirmed) since last Fall’s lows.
If/when this eventually is confirmed, this might indicate that large-cap Technology might begin to stall out following its historic rise. At present, this seems premature with MSFT, AMZN, META having all broken back out to new all-time high territory.
Note, this isn’t an immediate actionable negative for QQQ. However, this signal will have to be monitored for any instance of a weekly close undercutting the close from four weeks prior. This development would serve to confirm DeMark-based weekly “TD 13 Countdown” exhaustion for QQQ, inviting a pullback to commence.
QQQ daily chart looks to rally to test and potentially exceed July peaks by a small margin before exhaustion signals appear
Interestingly enough, daily QQQ signals which were discussed in recent days of a TD Sell Setup have now begun another count higher.
Time-wise, this might take another 4-6 trading sessions potentially before daily signals might also be in place.
In plain English, if/when daily and weekly QQQ exhaustion signals are in place using DeMark tools, one has a higher probability chance that a bounce might be close to exhaustion. ( My own historical studies show this, not DeMark’s rule)
Overall, this could be in place by late November on continued QQQ strength, and might provide a window for traders following a further run-up in price over the next 1-2 week timeframe.
I’ll monitor this and report when daily and weekly signals are in alignment. At present, it’s worth knowing that Technology and QQQ have extended gains, and it looks early to expect any kind of reversal this week which might be meaningful.
