Europe still gaining ground, while US lags again given Technology woes
- SPX minor weakness really hasn’t done much damage. Upside resistance is 4120
- Europe still outperforming US, and STOXX50 likely to trend up to 4100+
- VIX likely to bottom out near 19.50-20 into early December
Tuesday’s gains jumpstarted the rally which I feel should carry SPX up to near 4120 into early December. Wednesday started off on a strong note before showing some intra-day weakness; However, trends in both the US Dollar and US Treasury yields still haven’t sufficiently stabilized and started to trend higher in any meaningful fashion that would serve to potentially derail this rally ahead of the holidays. Moreover, trends remain pointed higher and US indices are likely to finish out the week at new highs for November. Interestingly enough, Technology was one of the key sectors which has lost ground over the course of the week, and Tech’s lagging will continue to likely be a factor which serves to limit US outperformance in the short run. Bottom line, it’s expected that SPX push higher above 11/15 intra-day peaks of 4028.84, which should allow for prices to reach 4055-4075 and ultimately near 4120. This hourly chart below shows the key area of support which should not be breached to keep this bullish scenario alive. This lies at 3980 and is not expected to be challenged right away before SPX pushes up above 4050.
Europe continuing to gain ground outperforming US given Technology’s recent lagging behavior
Europe’s STOXX 50 index began to accelerate following its early November breakout above meaningful downtrend line resistance. This occurred from two separate downtrends from 3600 to 3700 which have both been surpassed.
Overall, the act of regaining this area has helped STOXX 50 to begin moving up more quickly than what’s been seen in either SPX or NASDAQ lately, neither of which has accomplished the same feat.
I discussed European strength last week and continue to feel like the STOXX50 likely outperforms US Equities into mid-December and potentially into year-end.
Upside targets for STOXX50 lie just above 4100, and as of today, 11/23, it appears early to consider selling this and expecting any drawdown in the short run. DeMark indicators on ratio charts of FEZ vs SPY show FEZ and EZU to both likely outperform SPX over the next 6 weeks.
This likely reverses course into next year and it will be important to witness when this begins to show some mean reversion. At present, FEZ and EZU both look like outperformers to QQQ and SPX between now and year-end.
VIX growing closer to levels where it makes sense to buy implied volatility, and that could approach by early December
Technically, the VIX has lost nearly 40% in the last two months as the US Equity rally has proceeded largely uninterrupted. Despite the few instances of 2-3 day declines which have cropped up since mid-October, these have proven short-lived and have been buying opportunities for risk assets.
Specifically, given the lack of either selling pressure and/or unexpected events taking place, implied volatility has slowly drifted lower, as might be expected.
However, this likely comes to an end starting in December 2022.
Counter-trend exhaustion signals via DeMark indicators are nearly complete on daily VIX charts and could be in place within three weeks on weekly charts which would warn of an impending trend reversal.
Overall, one should consider buying implied volatility if/when VIX gets down near 20 and ideally near $19.50 in the coming weeks. Daily signals might be completed sometime this week. However, until confirmed, one should await weekly signals to also appear in unison before considering that this might be bottoming.
Weekly VIX chart shows possibility of bottoming in three weeks
Interestingly enough, while the daily chart of VIX with DeMark’s counter-trend signals looks to be close to reflecting “TD 13 Countdown Buys”, the weekly charts still look to be three weeks away.
Specifically, weekly VIX charts could generate DeMark-based exhaustion, by means of TD Buy Setups, as early as the first week of December and more likely by mid-December.
This directly lines up with the idea of a possible stalling out in stocks in early December, vs many who believe stock indices might just simply go higher during the entire month.
One should be on the lookout for if/when daily and weekly charts both start to show downside exhaustion in unison, as this would be the first real possibility of a trend reversal for implied volatility since October. Stay tuned. Happy Thanksgiving and/or holidays to all !
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