Insurance stocks are likely beginning a late inning advance  

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.   Near-term cycles still point to possible consolidation ahead of 12/22 before a year-end rally.  This should be led by a bounce in Yields and the US Dollar. 

If the Equal-weighted S&P 500 ETF from Invesco (RSP 0.37% ) gets above July peaks, then it will be right to simply ignore calls for consolidation until January.  At present, it’s important to mention that it’s not just RSP that is hitting critical levels.   Six Equal-weighted sectors are also right at multi-month trendline resistance: Materials, Discretionary, Financials, REITS, Communication Services,  and Utilities. 

The QQQ weekly chart with DeMark indicators shows why it might prove unlikely that QQQ immediately moves back to new highs without any consolidation. 

Many traders were quick to dismiss the daily signal which appeared in mid-November.  However, given that weekly indicators had not been confirmed, nor had the weekly Setup count completed, it made any substantial selloff likely difficult back in November (based specifically on the non-confluence of DeMark timeframes). (My interpretation only given my experience.) 

However, at present, the advance has now registered a “7 count” with the next week potentially providing an “8 count”.  Thus, the TD weekly Sell Setup count along with official “9-13-9 pattern” could be complete by next week in December.  (A TD Sell Setup, followed by a TD Combo 13 countdown, followed by another Sell Setup (this time also with a recently formed TD Sequential 13 countdown signal).)   

In plain English, the comments above simply relay that markets are close to registering a more highly probable area for a potential short-term inflection point.  Furthermore, this inflection, in my view, has a higher probability of working given the completed Setup count accompanying the 13 Countdown signal.   

Bottom line, I expect strong resistance to materialize for QQQ at $400-$400.75, at a level which is a bit higher than relayed last week, when I discussed $398-400.  (Note: to actually confirm this signal in the weeks ahead, QQQ would require a weekly close under the close from four weeks prior.)  At present, trends are certainly bullish, but yet appear to be closing in on resistance after eight weeks higher. 

QQQ

Insurance stocks remain preferred within Financials, but likely have begun a late-inning advance 

The breakout to new 2023 highs for the S&P 500 Insurance index (S 0.14% 5INSU- Bloomberg) keeps this uptrend strongly intact for one of the better technical sub-sectors within the Financials sector. 

This Cap-weighted index of 22 names looks a bit different than the S&P Insurance ETF (KIE 0.51% ) given its composition, but Insurance as a whole looks attractive technically given an above-average chance of a reversal back higher in Treasury yields in the next month.  

Stocks like Everest Group (EG -0.63% ) on Tom Lee’s Super Granny Shots list, have turned back higher to multi-day highs, and this seems likely to continue in the weeks to come.  That stock blends a favorable fundamental and technical picture. 

However, based on technicals alone, some of my preferred stocks within Insurance are: BRO 1.12% , AJG 0.49% , MMC -0.23% , AFL 0.50% , and L 0.00% .   All of these likely can show both absolute and relative gains in December, and are my favorites within the Insurance group. 

Technical targeted resistance for KIE, the S&P Insurance ETF (not shown) lies at $48-$48.75.  The chart below highlights the S&P Insurance index breaking back to new all-time highs. 

If rates only turn higher for a period of 4-6 weeks before turning back lower in 2024, the Insurance sub-sector might begin to weaken technically.   The combination of lower rates along with near-term overbought conditions and a heightened chance of upside exhaustion would prove cautionary to this group.  At present, it remains very much preferred, and higher prices look likely. 

S&P 500 Insurance index (S 0.14% 5INSU- Bloomberg)

Everest Group has started its bounce as Treasury yields have stabilized 

One of my favorite stocks within Insurance remains Everest Group (EG -0.63% ) and this stock has gained appeal in recent days following the successful bottoming out near key support. 

Its gains in recent days have managed to exceed the downtrend line from November, and should help this make a preferred holding within the Insurance sector.  Technically speaking, I anticipate a retest of highs near $418 and movement above that should lead to $425.  Intermediate-term targets lie near $480, but this is a long-term target, not something to expect in the near future. 

As seen below, pullbacks into November successfully held the intermediate-term uptrend, and the entire consolidation in recent months has occurred at a level above the prior neutral range from February into September of this year.  Thus, this stock remains quite attractive technically and should be headed back to new all-time highs. 

EG

US Financial Conditions index (Bloomberg) reaches highest in 21 months  

Given the multiple rate cuts that have been priced into the market in 2024, the Bloomberg US Financial conditions index reached the most accomodative reading in 21 months last Friday. 

Jerome Powell can likely only corroborate such readings if US Growth starts to roll over which wouldn’t be a positive for risk assets.   

Alternatively, if the FOMC has confidence in the economy, then a more hawkish message would be proper, pushing back on next year’s possible interest rate cuts.  This would also be a negative as Treasury yields would start to lift gain. 

Overall, the extent to which financial conditions have eased in recent months likely is not what the FOMC wants to see, as the market has taken the lead in easing too aggressively. (Based on both cuts priced in for 2024 which might prove premature, along with the extent that yields have dropped) 

My non-economist take on what Powell’s message might be this week is that the FOMC is in a tougher position and will need to “play both sides”.    

As discussed over the past week, Equities and Treasuries have both rebounded so sharply since October that the risk/reward has gotten worse for both on a short term basis, technically speaking, until consolidation takes place.   Tuesday’s about-face on a 3.1% YoY CPI print seems to suggest the same. 

While I agree that Treasuries and stocks should push higher in 2024, this likely won’t be a straight line. 

US Financial Conditions Index (Bloomberg)