US underperformance could persist into December
- SPX stallout hasn’t detracted from ongoing bullish trend; Higher prices likely into Dec
- Europe’s EUROSTOXX 50 ETF, FEZ, has outperformed SPY-0.91% since October
- China’s FXI has shown sharp gains in recent weeks; Yet, it looks likely to stall next month
The near-term uptrend remains intact, and despite some sluggishness this entire week in following through, it’s still highly likely that SPX pushes up to 4120 area before any meaningful snapback gets underway. Friday gave a glimpse of what could be an ongoing problem for markets over the final six weeks of the year. Namely, that Technology has hit meaningful upside resistance, and this might not break out anytime soon if Treasury yields start to turn higher in more aggressive fashion into December. This Tech stallout along with the falling US Dollar has hurt US performance vs that of Europe, Latin America and Asia lately, and this very well could persist a bit longer into December before getting back on track. Overall, it remains important to pay very close attention to Treasury yields as both yields and the US Dollar look to be stabilizing and if both begin to rally sharply, this would represent a meaningful headwind to US stock gains. At present, gains remain likely up to SPX-4120 into early December before a stallout.
European outperformance over US should persist into December
One interesting development when considering the rapid drop in the US Dollar since mid-October is the extent to which US Stocks have underperformed many other parts of the world on the Equity bounce.
Most of Europe along with Asia and Latin America have shown better gains than SPX, and despite the recent comeback in Technology over the last few weeks, SPX is still not doing as well as many developed countries indices. Europe, in particular, which was believed to be very hard hit due to their reliance on Russian gas, has seen shares spike quickly since the October low.
SPDR Euro STOXX 50 ETF, or FEZ-0.12% , as shown in ratio form to SPX, broke out back in late October vs. SPX, and has shown much better performance into mid-November.
Daily ratio charts of FEZ vs. SPY look to have about 3-4 weeks of potential further outperformance by Europe before this “hits a wall.”
Overall, specifically given the likelihood of Technology facing further headwinds and underperformance with possible gains in Treasury yields in the weeks/months to come, it looks better to favor Europe in the short run.
Three more weeks of gains would help the weekly DeMark counts from TD Sell Setups on relative charts of FEZ to SPY-0.91% . This also happens to be exactly lining up with the first week of December when the 60-year pattern as well as the Mass Pressure index shows signs of peaking.
Bottom line, between now and December, SPX should push higher; However, it looks likely that Europe will show even more relative strength and should outperform SPX.
China’s gains likely also persist into December before reversing course
China’s outsized gains in recent weeks also have dwarfed the performance in US Stocks, with China’s Large-Cap ETF FXI-0.21% having rallied more than 24% from its 10/31 bottom just 13 trading days ago.
This huge gain occurred directly following a breakout of a minor steep two-month downtrend and has allowed for momentum to turn back higher very quickly.
Unfortunately for FXI longs, there remains some difficult upside resistance which will come into play just over $29.50 that’s likely to cause a slowdown and likely consolidation into end of year.
At present, further gains do appear likely to $27.55 and above to $29.50 which would represent strong overhead resistance to gains.
While not shown below, DeMark weekly charts are quite premature in showing weekly TD 13 Countdowns on monthly charts of FXI-0.21% vs SPY-0.91% and likely will need to revisit lows before this materializes.
Overall, China’s outperformance looks to persist a few more weeks, and I expect outperformance over US equities until early-to-mid-December. After that time, it’s best to favor US stocks vs China’s FXI relatively, and a stalling out and reversal looks quite likely heading into 2023.
Grayscale’s GBTC discount to Net Asset Value likely to widen even further
Following the recent collapse of FTX, it’s been widely reported that Bitcoin’s fall has led the Grayscale Bitcoin Trust to fall to the largest discount ever to Net asset Value, which as of today exceeds a 40% discount to NAV.
However, technically, the fall back to new multi-month lows on Friday means that this discount is likely to grow even larger in the short run. GBTC has taken the lead ahead of Bitcoin in breaking November lows, and this decline under $8.87 has little support until near $6.78 which is considered a good area of support for GBTC, with intermediate-term support down at $5.35.
Given that wave structure seems to suggest GBTC is in the final stages of the move from late October and momentum has started to diverge positively, it looks attractive to buy dips for trading purposes down under $7. However, GBTC requires a move back up over 10.68 to have confidence of any long-lasting bottom.
