Ongoing Melt-Up in Stocks broadening

Technical Strategy Video (Recorded Thursday, November 4th):

Ongoing Melt-Up in Stocks broadening

Key Takeaways

  • Melt-up in US Stocks continuing to spread to different sectors, with Industrials, Retailing and many Hotels pushing back to new all-time highs
  • Short-term momentum getting overbought; Yet, no evidence of upside exhaustion to indicate an impending reversal. Technical target for late Nov lies near 4765-SPX
  • US Dollar index’s breakout on dovish Bank of England (BOE) decision should put further pressure on Emerging markets and could force precious metals lower

Parabolic surge in SPX now higher over the last 16 of 17 trading sessions. Momentum per RSI has reached the highest levels of the year; Yet, no evidence of exhaustion to expect an imminent reversal. Upside technical targets for ^SPX 0.06%  lie near 4765. Evidence of Industrials and REITS joining Discretionary this week back at new all-time highs

Ongoing Melt-Up in Stocks broadening
Source: Trading View

Technical Developments:

  • Technology largely carried the market Thursday along with Hotels and Retail within Discretionary.
  • Market breadth was negative as more stocks fell than rose and over half the sectors were down on the day
  • DeMark exhaustion for indices remains premature, and there remains no technical signs of markets reversing course to expect any sort of consolidation to this move just yet
  • NYSE Advance/Decline moved back to new All-time highs this week for first time since June
  • Industrials and REITS have joined Discretionary in pushing back to new all-time highs, and slowly but surely many of the laggard sectors from this Summer are advancing
  • Investor sentiment has continued to climb on this rally and AAII data now shows a bulls-bears plurality of +15; Pessimism has now reached four-month lows
  • Retailing and Hotels look like two particularly important groups to favor near-term
  • US Dollar has advanced to multi-day highs on dovish BOE (non) Decision. Further strength there likely
  • Emerging market (EM) weakness is continuing; Investors should avoid EM as the US Dollar trend is bullish at present.

As seen below, after a number of failed breakout attempts this past Summer, Retailing (XRT) (S&P SPDR Retail ETF) has just successfully pushed back to new all-time highs, exceeding levels that have held since February. This should be an area of near-term outperformance. Favored Retailer names are: BBY -0.59% , NKE -0.84% , MCD -0.05% , LOW -1.55% , KMX -0.54% , AAP -0.80% , AZO 0.80% , ORLY 1.16% , & ETSY -2.64%

Ongoing Melt-Up in Stocks broadening
Source: TradingView

Hotels/Lodging breakout also worth following near-term as an Outperformer

This group has literally just exceeded an area of resistance going back over the last three years. While most of Discretionary as a sector broke out last week, this component is just making its move. Stocks like MAR -0.42% , WH -0.86% , H -0.79% , HLT -0.62%  are all attractive for further gains and should be technically overweighted.

Ongoing Melt-Up in Stocks broadening
Source: MarketSmith, Investors Business Daily

Technology Exhaustion still premature – Technology ETF (XLK 0.37% ) rose over 1.2% today, far outpacing its equal-weighted comparison RYT, but provided a bit of camouflage as to the extent that markets gained ground today, despite the index move. From a counter-trend perspective, it’s always worth keeping a close eye on when upside exhaustion starts to form in leading sectors like Technology. When eyeing both daily and weekly DeMark indicators which can often be effective in signaling potential tops, it’s early to fade this move. Additional upside looks likely for XLK, and despite this having gotten stretched, upside targets lie at 170-180 before this stalls out and shows at least a minor retreat.

Ongoing Melt-Up in Stocks broadening
Source: Symbolik, DeMark Analytics

Finally, it’s worth noting that US Dollar strength looks to be continuing to affect Emerging Markets adversely (Ratio chart below of Emerging vs Developed Markets) This ratio peaked out early in 2021 and has had a steady slide ever since. This past week’s break to new lows has not only moved to new lows for 2021 but actually multi-year lows. Thus, while it’s always advisable to keep an eye on when things could change, it clearly still looks early with Dollar still pushing higher while EM relatively still weakens.

Ongoing Melt-Up in Stocks broadening
Source: Optuma

Disclosures (show)

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