**Please note that there is no Technical Strategy Video to go along with this report.
Key Takeaways
- Breakout in SPX proved unable to last, and late day reversal caused prices to fall while NASDAQ declined more than 1%. SPX got to within 7 points of 4750-75 resistance range. I expect a stalling out of October-Nov rally as markets enter December
- Powell renomination a short-term positive for US Dollar as well as Treasury yields ticking up, which happened on the short-end of the curve as yield curve flattening persists
- Financials and Energy made meaningful bullish reversals Monday that give confidence to further strength in the weeks to come
Early SPX strength got to within 7 ticks of resistance range from 4750-75 before reversing back sharply into the close. This 60-point high to low reversal could be important in suggesting this period of consolidation for markets has begun. Technology’s stalling out near resistance looks important and something to watch carefully give Tech’s outsized influence on indices and ETFs.
Post Fed-Chair decision comments:
Today could be the start of some rotation again back into financials and Energy while Technology lags. Charts show this move in Financials as likely following through higher and Energy to be bottoming near key levels. Meanwhile Tech is up against strong resistance and a pretty important reversal today for QQQ, NASDAQ
Yield curve still flattening with outsized moves out of 2, 5 yr yields while 10, 30 move up at a slower rate. US Dollar also turning back up to highs today, but expecting this move in USD proves short-lived and we do see an upcoming rolling over in DXY
Precious metals should be attractive to buy dips on this pullback. Expect that both Dollar strength along with Treasury declines (Yields backing up) proves temporary and we see yields pulling back lower into December/January and Gold, Silver both benefit. At present, we’re seeing the opposite
We’ll see the extent to which some of these “Laggard groups” can start to participate. I have my doubts technically on Airlines, Casino’s, Cruise-liners which all look awful and Small-caps are now down 8 of the last 10 trading sessions
Breadth has been lackluster and actually negative for most of last week. Today’s FED CHAIR decision might seem to clear the way for the Holiday melt-up for some, from a psychological standpoint, but we still have real issues with breadth being lower here than in June and lots of moving pieces right now
Sentiment needs to be watched carefully, as bullish levels have already grown fairly wide vs Bears over the last couple weeks as market indices have pressed higher. I suspect this likely expands further as a result of Powell’s renomination.
Elliott wave patterns show this rally for S&P to be nearly complete and could be in place by next week and near Dec 4, which is a cycle date for possible trend change.
Cycles, Sentiment, Wave structure all point to the possibility of a much “choppier” weeks ahead than many are expecting.
Overall, I see a good likelihood of 3-5% decline in US equity markets starting by Dec 4 that could erase 38-50% of the rally from early October BEFORE any push up above 4800. This certainly runs counter to most investors seasonal thoughts and often is a bad bet to go against a holiday rally. However, given the reasons above, this seems likely.
Invesco QQQ Trust ETF (QQQ), covering the NASDAQ 100 index (shown below) showed a similar but more pronounced decline on Monday, dropping nearly 1% and has officially given back the area of its former breakout from early November. This “bearish engulfing pattern” is a technical negative in the short-run, and it’s thought that Tech weakness might persist into December before this can move higher.
While Technology remains attractive on an intermediate-term basis, many groups like the Semiconductor space, have grown very overbought near-term and look likely to consolidate before further gains can occur. The area near 387 should initially be important for QQQ, and under would result in weakness down to 380, or the 50% retracement of the entire rally from early October.
Financials getting back on track given Yields pushing higher
Financials pushing back higher to reclaim the area of the recent breakdown is seen as a technical positive for this group after recent consolidation resulted in weakness down to new multi-week lows. Given that yields look likely to continue a bit higher in the short run, it’s likely this group can turn in better performance and show better relative strength. Overall, Energy also looks to be turning higher after hitting meaningful support, and it’s expected both Financials and Energy should be areas to overweight between now and year-end, while Technology might underperform after its recent surge back to overbought levels.
