Negatives increasing after bounce; Short-term Peak likely by Thursday

The spike back above 3800 might have seemed positive to many investors after SPX successfully held 3700 last week, but technically last week’s deterioration remains a larger technical concern heading into mid-term Elections and CPI data.  As charts show, the uptrend from 10/13 lows was violated on last week’s pullback, and the wave structure was very negative on last week’s decline.   Downside risk levels are very well defined at 3700, and any break of this level turns the near-term quite bearish which could bring about a quick retest of October lows.  Bottom line, market indices remain in a key window of volatility, and it’s essential for the Bulls that Technology starts to stabilize quickly along with rates showing more weakness.  Neither of these developments looks to be in place just yet.  If Technology begins to weaken much more to undercut relative lows to SPX, then markets could show some unusual volatility in the normally seasonally bullish month of November before a December bounce gets underway.  This week looks to be crucial, with upside resistance at 3820-3840 and important support at 3700.

Negatives that have cropped up over the last week

SPX, NASDAQ 100 uptrend from 10/13 lows has been broken and NDX closed at the lowest levels of the year last Thursday, underperforming SPX dramatically.

Treasury yields have not rolled over yet and still are pointed higher; While a peak in yields looks close, this has not yet occurred, and a break of TNX 3.90% is key for the Bull case.

Technology has lagged substantially in the last couple weeks and on the verge of potentially breaking relative support when eyeing Equal-weighted Technology (RYT) vs SPX.

5-year uptrends of Large-Cap Growth vs Value have broken down in the last two weeks which managed to successfully hold intermediate-term trendline support on initial weakness back in May 2022.  Large-cap Growth now joins Mid-cap and Small-cap growth in trending down.

Elliott-wave counts have shifted to more negative following last weeks’ sudden reversal.  My current top count suggests that prices might require a complete retest of October lows and likely break of this level.

DeMark indicators are close to signaling upside exhaustion on intra-day time frames for SPX, QQQ on this rally, while close to signaling downside exhaustion for VIX.

Short-term SPX cycles show a peak approaching after the bottom from late September.  (See Below) This might allow for weakness into end of month before a bounce into December.   Long-term cycles remain bearish into 2023 before bottoming and rallying into 2025.

Time targets show a plethora of “hits” in the month of November for an important turn

While I’ve discussed how 2022 could turn out to be like 1962, mirroring the 60-year cycle, last week’s decline gives me doubts that the final eight weeks will move higher uninterrupted.

Both the 10-year and 20-year cycles historically trended down into mid-November, and as I’ve discussed this period remains crucial given its success in having caused a change of trend in each of the last six months of this year.

I examined my spreadsheet showing “Angles of the circle” which I normally utilize to project possible changes of trend, and noticed that not only are markets approaching an important 1-year anniversary to last year’s peak.  In addition, markets are nearing a crucial 90-day window of our mid-August top.   Furthermore the 180, 270 and 315 degree projections all center upon mid-to-late November for a possible turn.  (See dates highlighted in Blue below).

Additionally, when one studies the former 3/23/20 to 1/3/22 advance, there remains a 50% time retracement window that projects into late November ahead of the Thanksgiving holiday.  (Recall that the Fibonacci 38.2% time retracement hit in September at the short-term peak) Also, the 1/3/22 to 6/16/22 decline, when projected forward, also lands in mid-November with a 100% time ratio hitting this month.

Finally, I’d be remiss if I didn’t mention the 90-year cycle which was mentioned a few months ago by my colleague and cycles expert Peter Eliades.  He notes that this 1084-month low-to-low cycle which bottomed in 1842 and 1932 also shows a possible projection into late November. 

Overall, if 3700 is violated in SPX in the days to come this week, I’d put lots of conviction in the idea of a rapid pullback to test and break October lows into mid-to-late November which would represent a very important low potentially for SPX. 

Bottom line, while my weekly cycles projection does focus on March-May of next year for a possible turn, I’d lean heavily on the thought that November 2022 might mark a serious bear market low if 3500 is breached which would give way to downward acceleration.  Note, this is mere conjecture at this point, until/unless 3700 is violated (First warning) and then 3500.  However, the combination of the wave structure of late along with some of the near-term cycles forecasts show the possibility of some volatility in November, and I cannot dismiss this, without Technology stabilizing quickly and rates turning down. 

Natural Gas could extend to $8 before peaking out again

Natural Gas has experienced a sharp rally over the last week, as forecasts for the first nationwide period of cold weather is expected for late November.

While the global gas market is tight given Russia having curbed supplies to Europe, prices near-term are likely to swing based on coming forecasts for cold or mild temperatures.

Technically speaking, prices pushed above the last week of consolidation, which is a bullish development near-term.  This caused front month futures prices to rise back above its 38.2% Retracement of the prior decline.  While stretched near-term given Monday’s gap, I anticipate that dips will be bought, leading up to $7.40 or above that level to $8 before reversing course.

Utilities showing increasing signs of rolling over

XLU0.56%  showed real evidence of weakness Monday, lagging all other 10 S&P SPDR Select ETF’s, as prices threatened too break the minor uptrend from mid-October.

If prices dip under $64.96 on a daily close, this would allow for a larger decline to test and likely break October lows. 

While the act of having gotten back over Summer lows was thought to be encouraging technically, we need to stabilize here and turn higher very quickly to avoid a larger breakdown.  Utilities such as D0.52% , NI0.92% , SRE, ES0.82% , ED0.63%  all fell more than -2.5% on Monday, and D, NI in particular remain quite weak, as these are some of the largest laggards within XLU technically.  Both are down more than 25% off 52-week highs.

Relatively speaking, Energy remains an overweight vs. Utilities and time counts point to another 2-3 weeks where XLE-0.30%  should likely outperform XLU0.56% .  Until/unless this changes, and Treasury yields begin a larger decline, one should avoid getting too concentrated in Utilities, and further weakness in this sector looks likely.

Bitcoin rally likely growing a bit stretched this week; September highs are likely to prove to be strong resistance near-term

Bitcoin’s rally has largely mirrored the move in US equities with both having bottomed on October 13^th and broken out of the downtrend from mid-August. 

Over the last month, prices have pushed higher in a stair-stepping pattern that still could allow for a bit more strength into Wednesday-Thursday of this week.

However, it’s thought that September peaks near $22.78k should represent strong overhead resistance before giving way to weakness into late November.

In the very short-run, it’s still right to be long technically until/unless $20.039k is broken for BTCUSD.  This would argue for a possible decline back down to test $18k.

Given that Equity indices are nearing a peak this week, I’m expecting that BTCUSD likely won’t be able to avoid selling off if/when Equities do.  Thus, using strength over the next couple days to take profits, while holding off on buying dips makes sense until late November. 

Any daily close back under $18k would be quite negative and certainly postpone a rally. 

Rallies back up over $25.2k would be unexpected over the next couple weeks, so movement back over this level postpones any selloff, allowing for a push higher to $32,950.