Airlines look attractive as a counter-trend tactical long

SPX and QQQ have surged on above-average breadth and have carved out impulsive rallies over the past week.  This is likely a positive for gains to near early October highs into late this week.  However, it’s likely that volatility is approaching for both Equities and Treasuries and Yields might begin to lift again starting around 11/13.  While the extent of this initial lift off late October highs has been impressive, it should undergo consolidation into Thanksgiving holiday before rallies can continue.    

No change in thinking for US Equities.  SPX, and QQQ have shown some minor stalling following a period of sub-par breadth in recent days, yet from a price perspective, the rally over the last week has proven to be impressive.

Overall, I suspect that Thursday/Friday of this week should usher in a short-term peak, and US stocks should consolidate between 11/13 and 11/22.

A couple key takeaways are proper for QQQ, when looking at daily Symbolik chart below:

• 1) QQQ’s minor downward sloping trendline was exceeded by price over the last couple days, which has not yet happened for SPX, DJIA, DJ Transportation Average, Russell 2k, nor the Equal-weighted S&P 500 ETF (RSP 0.04% )

This is certainly a positive, but the divergence between other indices is striking, and market bulls will require downtrends to be broken across many indices and sectors to have more proof of a market bottom.

• 2) TD Sell Setups (Per DeMark indicators) will be formed by any Thursday 11/9/23 close over $367.71 if Friday’s 11/10 close also occurs over $369.21.  (This also requires Wednesday’s peaks of $373.78 to be exceeded)  (Recall that TD Sell Setups can occur with bar 8 being the highest bar, regardless of bar 9 is below.  However, Friday’s close will require a 11/10/23 close over $369.21.)

In plain English, the comment above suggests that exhaustion is near and should be in place by this Friday but the highs of the move could take place tomorrow, Thursday 11/9.

Note that of the five swing turns that have happened since the late July peak, four of these occurred in the presence of TD Buy or Sell Setups ( 9 consecutive closes where the close was below (or above) the close from four days prior (Respectively))

• 3) Key QQQ constituents like META 0.27% , AMZN 3.36% , AVGO 3.84% , and NFLX -0.63%  are all nearing former monthly peaks which could be important as technical resistance.  (However, to the bulls credit, AAPL, MSFT have done relatively better of late and MSFT just closed at new all-time highs.

Bottom line, it’s likely that a short-term peak can happen between Thursday’s open and Friday’s close and could allow for near-term consolidation.

However, the extent of this push off late October lows has been strong enough that it’s unlikely that late October lows will be breached next week or the following. 

On any pullback over the next week, I expect that lows happen ahead of the Thanksgiving holiday before a push higher into 11/27-11/28 within the next three weeks. 

Airlines likely can bounce as WTI Crude falls

One group within Transportation that has begun to turn higher in recent days is the Airlines, which have popped as WTI Crude’s selloff has accelerated.

As seen below, the US Global Jets ETF (JETS -0.05% ) has broken its multi-month downtrend following the presence of DeMark weekly exhaustion just as prior lows from 2022 have been revisited.

While this move likely should prove tactical only, and might reverse back lower again in early 2024 if/when Crude Oil starts to push back higher, at present, this seems like an attractive technical risk/reward of an oversold group which has bottomed at support and shows oversold conditions.

My Favorite of the Airlines are :  SKYW, DAL 0.08% , UAL, JBLU 1.05% , and ERJ 3.96% .

All of these look attractive on a 2-3 month basis.  However, given the extent of the decline in recent months, one should expect initial gains to prove tactical and potentially short-lived.

However, there are enough technical positives in the short run to discuss this group favorably, technically, but specifically as a counter-trend idea which has bullish short-term technical setups.

Aerospace & Defense stocks growing increasingly attractive as intermediate-term breakout looms

The recent surge in geopolitical tension given the Israeli/Hamas war has resulted in Aerospace and Defense starting to show some meaningful strength in the near-term.

Weekly Marketsmith charts of the Aerospace and Defense sector show this recent strength to be part of a giant basing pattern that’s been intact since 2020 and has shown several meaningful prior peaks near the same level as part of an ongoing Triangle pattern.

Overall, given Israel’s comments about their Gaza offensive to have “no limitations” to length, I suspect the Aerospace and Defense group could show further strength into 2024 and should show better than average relative strength within the Industrials space.

My favorite stocks within this group are:  TDG 0.20% , TXT, ITT 0.81% , RTX -0.29% , and GD -0.17% .

(For more information on Investors Business Daily’s Marketsmith charts, click here: https://bit.ly/3Mihxle )

Crude Cycles revisited;  Daily and weekly both show strength in 2024

As discussed last month, WTI Crude cycles trend lower until late November before bottoming. 

What seemed initially like a mild period of consolidation for many Energy stocks has begun to accelerate lower as Crude has dropped 6% in the last two trading sessions (Wed 11/8 included)

While front month Crude arguably had not broken down ahead of today, this weakness started to happen in Generic Crude following the period of steep backwardation and bullish sentiment into this past Fall.

Daily cycle composites show a sharp rally beginning likely by early December which might carry Crude higher into Spring of 2024.  However, as I’ll discuss below, when combining daily and weekly cycles, it’s thought that Crude’s ascent should carry higher into Fall of next year.

Overall, the composite below contains just a few of the key short-term cycles in Crude and does not delve into longer-term cycles.  These have real importance, however, so it’s important not to put too much weight into the Daily cycle composites without including the weekly.

Bottom line, I expect short-term lows for the Energy sector and in WTI Crude within 2-3 weeks and very well could be in place by late November.

Weekly Crude Cycles show strength into Fall 2024 

When looking back over the last decade of peaks and troughs in Crude oil, it’s still apparent that intermediate-term trends remain bullish and can carry higher next year.

The last five peaks (Spring 2022, December 2018, July 2014, March 2011, and June 2008) showed meaningful weakness on four of the five occasions.  The one occasion this did not work as well was March 2011 and even on this peak, WTI Crude fell from $110 to $80.  Importantly, the next intermediate-term peak is scheduled for late September 2024 and falls into 2026.

In terms of Crude bottoms projected by my weekly cycle composite, there have been six since 2006: (June 2006, October 2009, July 2012, August 2017, April 2020 and July of this year (2023))   The 2006, 2009 and 2020 were considered quite successful, while the other three were just marginally successful. (I’m considering 2023 as marginal given the extent that prices are now pulling back since July)

Overall, the intermediate-term cycle from July 2023 extends up into September 2024 and largely does not recognize the recent weakness in 2H 2023.

Given that daily cycles bottom within a month, I suspect that this minor pullback is merely part of a larger bullish cycle for Crude oil (and by extension, Energy)

Thus, to reiterate thoughts on Energy given recent weakness: 

Thus, late November/early December should provide a potentially appealing time to overweight Energy for a better than expected period of outperformance into Fall of 2024.

As discussed Tuesday night, I feel that XLE likely works better vs. OIH or XOP until evidence is in place that Crude has bottomed.