Near-term trend for US Equities is bullish, but getting extended as part of negative momentum conditions on weekly and monthly charts. Treasury yields and US Dollar might weaken into US Thanksgiving holiday but larger breakdowns technically look premature. An Equity rally looks likely into 11/24 or 11/27-28 before consolidating into early to mid-December.
Following an early session of flat market breadth, many sectors improved to close Monday positive, with just Materials, Utilities and Staples finishing the day in negative territory. NYSE breadth closed at a bit more than 2/1 positive.
SPX, DJIA and QQQ all closed up above highs of the past three days, which had shown some minor stalling out to close last week. This keeps near-term trends pushing higher, with no evidence of weakness. However, it’s thought that both SPY and QQQ might find strong resistance heading into Wednesday given the presence of counter-trend exhaustion on daily charts with both ETF’s just shy of prominent levels.
Importantly, most sectors are continuing to underperform Big-Cap Technology by a wide margin. Even with Equal-weighted Technology and Communication Services outperformed all other Equal-weighted ETF’s, it was XLK 0.50% ’s +1.45% gains that swamped all other cap-weighted ETF’s, as Large-Cap Technology proved to be dominant yet again.
Following a rally into Wednesday ahead of the US Thanksgiving holiday, investors need to be on alert for any hint of negative market breadth, or DeMark-based exhaustion appearing on indices and/or on Treasury yields which might be important towards signaling that consolidation might be overdue.
QQQ’s weekly chart (shown below) looks much stronger than either DJIA or SPX, which both are showing negative divergence as prices lie just below key resistance near late July peaks.
QQQ’s pattern looks appealing, though it’s thought to be unlikely to exceed November 2021 highs to reach new all-time highs right away.
Counter-trend exhaustion is now present on daily and weekly charts for QQQ, and while not confirmed, I expect that upside should prove limited into this Wednesday. I had listed resistance at $392-$393 but movement above that would have little to no resistance until 400-408 which was hit nearly two years ago.
This week represents the fourth straight week of gains (possibly, if the week were to close on a positive note by Friday’s close) and gains seem unlikely given the presence of upside DeMark-based exhaustion while many other sectors aren’t showing near the same level of strength.
Overall, similar to DJIA and SPX finding likely resistance near July highs, QQQ should not get above 2021 peaks to new all-time highs this year, in my view. Any hint of Treasury yields turning back higher in December would likely result in Technology starting to consolidate gains into mid-month. For now, the chart below certainly seems quite bullish technically. However, I think it’s right to be a bit skeptical that this trend would push back to new highs without consolidation right away. I anticipate at least a minor reversal starting late this week/early next.
Semiconductor sector breakoutlooks early to fade ahead of NVDA earnings
Technically speaking, the breakout to new all-time highs for Semiconductor stocks (as seen by VanEck Semiconductor ETF, SMH) looks quite bullish technically.
Unless this push to new highs is given up right away post NVDA earnings, it’s thought that this sub-sector likely could possibly rally further with targets near $170 for SMH.
Counter-trend tools suggest that exhaustion remains premature on daily charts by at least three-to-five trading days. Furthermore, weekly charts are early by as much as six weeks.
While momentum has certainly reached overbought levels on daily charts for SMH, it looks early to fade this breakout this week, in my view. On any continuation higher into end of week or 11/27-28th, there might be more convincing reasons why SMH might stall out at even more overbought levels.
However, at present, a breakout to new all-time highs in a shape of a giant Cup-and-Handle pattern is normally thought to be quite bullish technically.
The Software breakout shown a few weeks ago on relative charts of IGV 0.49% vs. SMH failed to materialize, and “Semis” have taken the lead yet again in outperforming. I’ll continue to monitor this sub-sector closely, particularly given NVDA earnings on Tuesday.
NVDA’s breakout to new all-time highs after earnings keeps this bullish ahead of Tuesday’s earnings
NVDA has gained nearly 25% over the last 16 trading days to push back to new all-time high territory since bottoming in late October. This has helped to improve its short-term momentum, and the ability to maintain new all-time highs on a weekly close likely has little resistance until $550-$575.
Thus, technically the stock remains in stellar technical shape in the near-term. While weekly charts show negative momentum divergence following the stock’s push to new all-time highs, it’s difficult considering selling NVDA without much technical proof.
Given the rally of over 300% from last October’s lows, its pullback attempt from August peaks managed to retrace right near a Fibonacci 23.6% retracement of the prior rally in the last year before pushing back up rapidly in recent weeks. Key support lies at October lows at $392, and October’s month-end close proved to be within $3.00 of the prior support target of $410 listed last month. Overall, while the waning intermediate-term momentum will have to eventually show more consolidation, it hasn’t yet shown much evidence of peaking out at this time.
Many investors incorrectly viewed its consolidation in recent months as a Head and Shoulders reversal pattern and NVDA got down to, but not below key levels that would have resulted in downside follow-through and technical deterioration. My work suggests that support for the weeks ahead will continue to be found at $392. Until/unless $392 is violated, NVDA remains bullish and is thought to have an excellent chance of pushing up to the $550-$575 level.
Under $392, if this occurs in the months ahead, would lead down to $353 which represents strong Fibonacci support near prior peaks from 2021. At present, this remains one of the strongest intermediate-term names within Technology, and is right to still consider quite attractive technically speaking.
Crude Oil short-term bounce might be underway into December, but another pullback to lows likely before Crude oil can be officially considered bullish
The extent of Crude’s bounce since late last week makes it quite possible that this initial selloff from late September has run its course. The extent of the bounce in recent days makes it more probable that the initial pattern from late September could be complete.
However, Crude remains in a seasonally weak time heading into a very important OPEC meeting later this week.
Regardless of a bounce to the mid-80’s plays out into December (and this would make sense given Fibonacci retracement targets) I’m expecting that Crude likely might need to revisit its lows given the presence of a completed five-wave decline over the last two months.
Overall, I view Crude oil and Energy as a sector to be attractive on a 9-12 month basis. However, it’s difficult to say with conviction that meaningful lows are in place, despite the degree of bounce in recent days.
Bottom line, I believe stocks like MPC, VLO and HES (which are part of the UPTICKS list for both FSInsight and Fundstrat) are attractive to own technically at these levels.
However, bounces for now should be viewed with skepticism as to their longevity given the weak seasonality and ongoing bearish technical momentum.
If Crude can begin a three-wave advance off the lows, one should consider it likely that a pullback into January/February might occur which would be a very attractive time to consider buying Energy for a rally into next September.
I’ll review my thoughts on Energy further in my 2024 Technical Outlook on 12/14/23. At present, I had lowered my Energy ratings from Bullish to Neutral last month and am awaiting an opportunity where technical trends, momentum, seasonality and cycles might warrant an overweight. I can’t say that with conviction just yet, but any weakness into early next year would make Energy quite appealing from a risk/reward perspective.
