Technical Strategy Video:
Key Takeaways
- Trends & momentum have stabilized short-term and prices are now nearing highs of recent 1 month consolidations in SPX, NDX and also nearing important trendlines for Value Line Geometric Avg, and Russell 3k. Getting above resistance still needed to officially have conviction that Santa rally will get underway next week.
- Treasury yields look to be on the verge of breaking down; Movement under 1.80% for TYX and under 1.42% for TNX would be problematic for the near-term “bull case” for risk assets, as Financials, a key SPX component, would lag substantially
The last two days of bounce have been constructive at a time this was sorely needed for US Equity indices. SPX has pushed well back into its recent range, as opposed to breaking December lows. Moreover, Equal-weighted indices have snapped back and are pushing up to “Make-or-Break” levels. Overall, it’s vital that the broader market recover and show a similar level of strength as what’s being seen in the SPX. Below, a daily chart showing what’s important to have real conviction, with regards to SPX. This is an hourly chart showing the ongoing range from mid-November. Prices are now getting up towards the highs of this pattern, but yet will need to eclipse 4732 to think Santa’s on his “merry way” Meanwhile, any reversal from here also can’t afford to fall under 4614 which would lead to a break of December lows.
SPX hourly chart shows this bounce as still having some work to do. Targets for this rise lie at 4700, or above at 4719, but only ABOVE 4732 from four trading days ago, would serve to improve this pattern meaningfully and give conviction of a breakout and impending Santa rally.
Russell 3000, which often makes more sense to analyze in terms of being a true broad-based gauge for US Equities, has some work to do, and as shown below, made its highest high for the year back in mid-November. Breakouts of this trend would truly give more confidence of a push back to new highs which would come about next week. Yet, this hasn’t happened yet and given the negative momentum, and lackluster breadth (Even after Tuesday’s rally SPX still only has 51% of all issues above its 50-day moving average (m.a.) it’s proper to wait for confirmation A daily close above 275.87, the 12/8 high, is necessary in the days ahead for real conviction.
Treasury Yields still paint a troublesome picture
Charts of US 30-Year Treasury yields remain in downtrends and yield curves continue to flatten out, despite the FOMC having telegraphed intentions for three rate hikes in 2022. Technically I feel a break of 1.80% is likely in TYX, and if this happens in the week(s) to come, it would likely also coincide with Equities sliding, not unlike what occurred in late November (See below for the break of this first white uptrend line by 30-Year yields. Overall, I feel that yields should lead the way, and for now, this range-bound consolidation as yields have not followed Equities higher this week, is a bit troubling.
Sector performance still largely Defensive over the last month – Over the last month, the only positive performance of the SPDR S&P GICS Level 1 groups has come from the defensive groups, along with Technology, while Discretionary, Industrials, Financials, have all dropped more than 2%. Communication Svcs, Materials and Energy also have been lower by more than 1.40%. Yet, Technology’s +0.73% gains have been important in buoying this market at a time when many other sectors just aren’t working that well. Overall, to have confidence of the market getting healthier, it’s going to be necessary to see this change, with multiple sectors pushing back to highs. This would go a long way towards helping many more stocks push back above their 50-day m.a. and restoring conviction at a time when it’s sorely needed.
