Technical Strategy Video (Recorded Tuesday, October 26th):
Key Takeaways
- Technology looks to be stalling near resistance at highs from late August, which resulted in US indices pulling back from intra-day highs
- DeMark indicators like TD Sequential are one trading session away from completing TD Sell Setups, which could result in temporary consolidation for US indices
- US Dollar index’s turn back to multi-day highs puts this rally back on track; DXY likely to rally to 95-95.50 into November
SPX formed a “shooting star” pattern for the first time since early October on this run-up. This can allow for temporary consolidation and/or minor weakness before this rally continues
Expect possible 2-3 day pullback might materialize but nothing more serious at this time.
Technology looks to have found strong resistance near late August 2021 highs
Daily charts of Invesco’s Equal-weighted Technology ETF (RYT) which is a better suited gauge for viewing Technology as a whole than XLK, has stalled out over the last few days near late August highs. Tuesday brought about meaningful pullback from earlier highs. It looks likely that we’ll see a bit of stalling in Technology in the days ahead and could see minor weakness. However, this should bring about buying opportunities on any pullbacks. Alternately, if prices push back to new highs in RYT, that would also be a chance to participate. At present, this looks like a tough area, and will require some consolidation.
Upside Exhaustion based on DeMark indicators looks likely this week and could be in place by Wednesday. This might result in a minor consolidation to the market’s rally.
DeMark indicators show a near confluence of upside exhaustion near—term as “TD Sell Setups” (a condition where nine consecutive daily closes finish above the close from four days prior) This often can result in at least a minor slowing of an uptrend and possible near-term reversal. Following nine of the last 10 days of gains, Tuesday’s finish down near lows of the session indicates a minor stalling might be at hand. Wednesday could complete this pattern (if prices finish above the close from four days prior, which isn’t known at the time of this writing) and the combination of DeMark exhaustion being near completion along with NASDAQ having stalled near prior highs makes it likely that a minor pause could be likely after this big Runup. However, technically, given the non-completion and/or confirmation of any weekly signals, while VIX daily and weekly exhaustion is absent, I suspect any minor pullback will prove very short-lived before yet another assault on record highs, this time with NASDAQ joining the SPX.
US Dollar index bottoming out and trend break should lead to strength back to new monthly highs into November
Finally, it’s worth pointing out that the US Dollar index looks to be starting its rally back to new monthly highs. EUR/USD and GBP/USD are both weakening and further pullbacks in these are likely, as DXY (US Dollar index) pushes up to 95-95.50. Overall, I expect Dollar strength to prove short-lived and Elliott patterns argue for possible completion to this rally into November/December which could then lead to a pullback to new lows into next year. At present, rallies are likely in the next 3-4 weeks back to new monthly highs.
