US Equity markets are likely to show a short-term low by end of week/month/quarter. However, the break of August lows by AAPL and QQQ is a near-term negative that means this likely might not occur until Thursday/Friday of this week. Short-term trends, breadth remain negative and momentum is nearing oversold levels while intermediate-term bullish structure remains intact.
At present, it’s tough to spin Tuesday as a positive as markets have begun to show more short-term evidence of downside acceleration. However, this remains part of a larger uptrend from last October’s lows that has not been broken in SPX. In my opinion, one can continue to label recent volatility as short-term weakness within an ongoing uptrend.
However, what was formerly just a minor pullback in Discretionary and Staples names has begun to metastasize across multiple sectors. All 11 major S&P Equal-weighted sector ETF’s are lower by more than 1.4% over the past week. Yet, Real Estate and Discretionary have borne the brunt of this selling, as each of these sectors has fallen more than 3.4%.
NYSE Advance/Decline has now broken its one-year uptrend from last October lows while the Percentage of stocks within 20% of 52-week highs has also broken a similar length trend in both SPX and NYSE.
Overall, near-term trends are down, and will require a move back above 4335 in SPX to suggest a bottom could be in place. At present, most support seems to materialize at 4190-4210, and many eyes are looking closely at 4200.
Until/unless counter-trend TD Sequential and/or TD Combo 13 exhaustion signals turn up for TNX and are confirmed, it will be difficult to put too much faith on an SPX bounce. However, when this does happen, I suspect that 4400-4450 will come into play as the first upside area of importance.
The good news for Market bulls is that relief might be just around the corner for the following reasons:
- DeMark related exhaustion could possibly materialize for SPY and QQQ by end of week, while SMH might also show similar signals.
- Daily and weekly charts of TNX along with DXY are also very close to signaling exhaustion on multiple timeframes, which is present now but not confirmed on weekly charts of TNX and DXY.
- Technology has actually held up far better than other sectors, and is the second best (Least worst) of any of the 11 major sector ETF’s on an Equal-weighted basis over the past week and month, while third best over the last three-month basis.
- RSI has officially reached the lowest levels of the year on daily SPX charts
- a) Formerly neutral sentiment is now turning bearish. CNN’s Fear and Greed index has registered a 27 reading out of 100, which puts this firmly in the “fear” category, and very close to “extreme fear” which would involve a drop under 25.
- VIX was up more than 12% on Tuesday, reaching the highest levels since May.
- Seasonality in recent history tends to be kind to markets which experience a negative September. The last three Septembers which have all shown negative performance worse than 3.50% for the month all rebounded to close out 4Q higher by more than 7%.
- 80-day trading day cycle bottoms in early October and rallies throughout the month.
- SPX is approaching its rising 200-day moving average (m.a.) which lines up with the uptrend from last October along with February 2023 peaks (now possibly support)
- The points lost and time of this most recent downturn from early September is now roughly equal to the decline from late July.
- Defensive sectors still haven’t shown much strength. Technology is outperforming REITS, Consumer Staples and Utilities over the past week along with over the past 3 months. (Utilities has been relatively stronger than Tech over the past month)
Yet, all is not all that bullish just yet in the short run, as we’ve seen meaningful breaks in short-term breadth gauges and key stocks like AAPL have just violated August lows. Furthermore, despite the threat of a possible Government shutdown and/or potential debt downgrade, there remains no evidence of real capitulation.
My own personal thinking is that the government shutdown seems like a foregone conclusion which has been estimated at 75% probability according to Bloomberg. Thus, it could be the case that this has been built into the market already.
Apple’s break of August lows at $172 is a temporary negative
AAPL remains arguably the most important stock within SPX and QQQ given its percentage, making the break of $172 something to watch carefully for any possible follow-through on the major US indices.
Until this 172 level can be recouped on a weekly close, it’s likely that AAPL likely will weaken a bit more into end of week with key levels of support found near $166, then $161.75. This first level lines up with the 200-day moving average and 161.75 is a rough gauge for the 50% retracement level of AAPL’s prior January 2003 – July 2003 advance.
TNX Daily DeMark count shows possible confluence by end of September on upside exhaustion
Interestingly enough, TNX could possibly reflect both daily and weekly exhaustion into end of week/month/quarter with daily and weekly indicators lining up to show 13 countdown “Sells”
This would represent the first confluence of daily and weekly signals since mid-August, and at that time, it proved quite short-lived before yields pushed further to the upside.
Note that even on a confirmed “Price-flip” on daily and weekly TNX charts for DeMark signals, the TLT chart requires at least another two months of lower counts before this will officially signal a buy signal. (Meaning each of the next two months will need to close under the close from four months ago)
Thus, the earliest possible intermediate-term signal likely will not materialize for the broader Treasury space until November. However, I feel that the first week of October might bring about a short-term peak for Treasury yields, which then might be retested into November.
Healthcare beginning to finally turn higher relative to SPX, but for how long?
This past week brought about the first evidence of Healthcare breaking its downtrend since Spring 2023 relative to S&P 500 when viewing both in equal-weighted terms on ratio charts.
This looks to be a short-term period of strength only, and the weekly trend for Healthcare has largely been neutral for the last three years.
While this sector along with Technology, Industrials and Energy was a pick for 2023 outperformance, it’s had a number of false starts and fake breakouts in recent months.
My thinking is that near-term strength into October likely will prove short-lived only before Healthcare turns back lower for underperformance in Q4.
I’ll consider using relative strength to turn more Neutral on Healthcare over the next couple weeks, as I suspect that the larger relative trend vs. SPX doesn’t justify an Overweight at this time technically for intermediate-term basis.
At present, Healthcare looks likely to outperform SPX into early October.
