US Equities and Treasuries look to be near resistance, while the US Dollar index has begun to rally. A majority of the major sectors are also now right near meaningful intermediate-term downtrends. Until we can see proof of downtrends being convincingly broken across the board, I still view current levels as being a poor risk/reward for new investments without consolidation. Strength into next Monday should hit a resistance wall, and give way to a two-week pullback into 12/22, which should be led by a bounce in Yields.
Treasury yields started to turn back higher immediately following Friday’s economic data, and I expect that this rise in Yields along with the recent strength in the US Dollar could help to prohibit stocks from escalating further over the next two weeks. Furthermore, movement over 4.30% in TNX should result in SPX beginning its correction into December expiration.
My comments from yesterday should be repeated, as this looks to be a playbook that can happen into next week. (“What should be important is to watch Treasury yields carefully, as they could very well turn higher following Friday’s Non-Farm Payrolls and Hourly earnings data. If this happens, then I suspect the Equity rally should begin to dry up at marginally higher levels and any US Equity rally might occur on thin participation and potentially flat or negative breadth into next Monday. Thus, watch bond yield and watch market breadth between Friday and next Monday.”)
Overall, I feel that it’s difficult to call Friday’s rally a breakout as SPX finished under prior intra-day lows from 7/27. Additionally, equal-weighted indices like Value Line have only retraced around 61.8% of the prior decline from July. As mentioned earlier this week a plethora of S&P Sectors have rallied up to meaningful downtrend lines from July peaks.
Thus, it’s hard to claim that breakouts have occurred just yet, despite the US Equity markets resiliency. If broad-based strength continues over the next week, then selloffs will be postponed until January. However, my main view continues to be that it’s right to be selective here in Stocks after this rally. Furthermore, signs of TNX starting to turn higher to join the US Dollar’s rally should be difficult for Equities to ignore. I’ll be watching carefully next week for evidence that TNX is not turning higher. However, for now, the US Dollar seems to have taken the lead, which is not unlike what happened back in October as the DXY started to turn lower a few weeks ahead of Treasury yields.
S&P 500
Equal-weighted SPY breakout vs SPY is important for 2024
Since the October lows, markets have shown their hand in what could be a possible playbook for 2024.
Specifically, in the last month, five Equal-weighted sectors have shown strong gains greater than 8% which have outperformed the Invesco Equal-weighted S&P 500: Discretionary, Technology, Financials, REITS, and Industrials all with performance of greater than 8% on a rolling one-month basis.
Incredibly enough, 10 out of 11 Equal-weighted sectors have beaten the SPX. In my view, this is a big sign that the broader market recovery is coming in 2024 following a period of Technology dominance, and very thin performance
Below is the chart of Equal-weighted S&P 500 ETF by Invesco (RSP -0.99% ) divided by the cap-weighted SPY -1.93% in ratio form. Four factors arguably support the idea that Equal-weighted S&P 500 might outperform SPX and look particularly important:
- The downtrend line in this ratio for 2023 was exceeded last week for the first time since early 2023.
- Counter-trend DeMark exhaustion is present on a weekly and monthly basis
- Positive momentum divergence is present using indicators like weekly MACD
- The ratio has hit a level near prior lows which looks to be important as support, and also is hitting a level of monthly support, drawn from the 2009 lows, which undercuts the 2020 lows (not shown)
RSP/SPY
India remains one of the better Emerging markets to consider in 2024
Given the thoughts of the US Dollar starting to embark on a larger downturn into 2024, it’s important to keep a close eye on Emerging markets, which might be particularly well positioned for outperformance next year.
Many have attempted to buy dips in China this year which has proven difficult, while the rally in Brazil seems to be stalling out following a nice bounce.
Overall, I favor India and Mexico as two of my favorite non-US Emerging markets, and feel both of these could offer above-average performance in 2024.
India’s breakout to new all-time highs has not really been mentioned by the mainstream media, and its rally in the last week has carried the S&P BSE SENSEX, India’s cap-weighted index, to levels just below $70k.
At current levels where could be some minor consolidation given the equal-length rallies from 2022 lows equaling the rally from 2023 lows.
However, this remains attractive and any pullback down to the mid-$60’s should make this quite attractive for gains into 2024.
INDA -0.44% , the liquid Ishares MSCI India ETF, has rallied to the highest levels since last Spring over the last few weeks, and is one of my preferred liquid ETF’s which I find attractive for those interested in exposure to Indian Equities.
Following Friday’s move to just over $47, one should consider $45.50-$46 a very attractive area of technical support, which could make INDA appealing on any consolidation of this recent sharp move. Following consolidation, I expect a rally back to test and exceed November 2021 peaks at $50.81.
Weekly charts of BSE SENSEX are shown below to illustrate the extent of the recent sharp gains and ongoing resiliency of the Indian stock market.
SENSEX
Airlines have nearly reached technical targets- Expect a stalling out next week in JETS
I discussed a possible rally in Airline stocks on 11/8/23 in these reports, and JETS -1.39% the US Global JETS ETF, has now nearly reached an important technical area which I feel might result in stalling out in this recent bounce.
I view $19-$19.50 as being important after this rally over the last five of six weeks, and expect JETS -1.39% to find sharp resistance and likely consolidate in the weeks ahead.
Given the long-term downtrend from 2021 peaks in JETS, bounces which take daily momentum indicators like RSI to overbought levels while the broader intermediate—term downtrend remains intact are normally a case to expect some stalling out in the recent rally.
While I would respect a JETS rally over $21 in 2024 as being quite positive, I don’t find the sector nearly as attractive at $19 or above in the short run without consolidation.
Furthermore, given my thoughts of WTI Crude having reached levels which would result in a large rally in 2024, I suspect that rising WTI Crude prices might prove to be a negative factor for Airline stocks.
Overall, while the near-term trend from October remains intact at this point, I expect that Airlines are not nearly as good of a risk/reward anymore. JETS targets are approaching, and I expect this recent rally could reverse in the near future.
JETS
