Technical Strategy Video:
Key Takeaways
- Bounce underway for US Equities after pullback looks to have hit support near Summer lows on Value Line Geo Avg and Russell 2000 index
- Defensive and Low-Quality outperformance over Technology likely means its early to have too much conviction on a push back to highs
- Cryptocurrencies also hit near-term support, but similar to Equities, more is needed
Monday’s bounce looked to have occurred right on schedule, and improved steadily throughout the session. Early weakness in Tech gave way to recovery, and breadth finished nearly 4/1 bullish. One interesting development was the extent to which many of the Low-Quality names outperformed, particularly the hardest hit stocks in severe downtrends. Meanwhile, Defensive groups like Utilities, REITS, & Staples outperformed nearly all other areas of the market. Overall, as daily SPX charts show below, barely any meaningful damage has occurred with SPX and NDX as compared to broader-based Equal-weighted Gauges of US Equities. Bottom line, a bounce is underway, but yet it lacks conviction to definitively say that the recent downtrend has made its low for December. The next 1-2 weeks still look choppy before a Santa rally starts.
Wave structure suggests the first leg of this pullback from November is likely complete. Overall, the 90-day cycle suggested Stock index declines might run their course by 12/3-6. This now seems valid. Yet we’ll want to see two things to gain conviction: 1) A five-wave push higher off these lows which occurs on broad-based participation 2) Evidence that Technology can show better strength than Utilities and Staples. As the hourly SPX chart shows below, a move up to 4620-50 looks possible before yet another retest of lows. Sentiment had indeed turned bearish in the last week. However, it was difficult to say that lows were at hand specifically based on this per se, given the lack of capitulation. No TRIN (Arms Index) readings were present over 2. Meanwhile the Equity Put/call ratio was still well under .80, much less 1 on this rebound. Gann’s Mass Pressure cycle suggests a bit more choppiness until 12/21 and then a proper Santa Rally gets underway. At present, as much as it would be nice to think new highs are imminent, insufficient technical evidence is in place to make this call.
In Cryptoland, (BTCUSD) Bitcoin has begun to stabilize following this past weekend’s Flash crash, which produced a near 20% plunge in about 40 minutes time before some recovery. Following a near test of September lows, prices rallied to hold near 49k which represents a 50% retracement of the prior Low to high range (Also effective in late September) and just below the 200-day m.a. However, trends and momentum are quite negative in the short run, so there’s no guarantee BTC has found any sort of meaningful bottom. Uptrends from July have been violated along with early September highs near 53k which was thought to likely contain near-term weakness. Overall, an oversold bounce does look likely here; However, daily closes back over 53300 are necessary before thinking BTC might be bottoming, with real conviction found once 56k has been reclaimed. Thus, bounces are tentative for now, with resistance at 53.3k-56k while support lies at 42k, and then 39.50k.
To expound upon the Defensive Strength comments from Monday’s trading, we see Invesco’s Equal-weighted Utilities index having pushed up to new weekly highs as of Monday. More importantly, relative charts of “Utes” to SPX broke out of downtrends extending back to last year. Thus, the last few trading days have made above-average progress in showing these Defensive groups strengthening. While some might not think too much of this, it IS rather unusual to see this kind of behavior in December, and these groups do look to outperform in the next few weeks, regardless if it just appears like a short-term bounce. It’s thought that the next 3-5 trading days should shed some further light on this recent pop in the lower quality and Defensive issues. For now, these Defensives are bullish for tactically oriented Traders.
