Due to a technical issue, I was unable to show some of the charts in the video. The remainder of the charts can be found inside my report below. Sorry for the inconvenience.
Near-term trends for US Equities are bullish and should require consolidation in the weeks to come following their sharp rallies from October lows. Treasury yields and US Dollar should be close to bottoming. Equity indices might temporarily peak this week and pull back ahead of a rally into 2024. At present, precious metals, Crude oil, and Cryptocurrencies arguably are more attractive than Equities over the next few weeks.
As discussed earlier today on “Flash Insights”, the new intra-day service for Fundstrat clients and FSInsight subscribers, S&P traded down meaningfully from earlier highs after earlier rally attempts.
SPX is now largely unchanged over the last six trading sessions and Wednesday’s close of 4550.57 lies less than 4 points from levels achieved last Monday, 11/20/23.
SPX is now negative week-to-date following Wednesday’s close, despite rates having made fractional downward slide. I’ve argued that rates should be nearing support, and Wednesday’s trading did little to dissuade me on this point.
Breadth waned a bit from early morning’s robust levels, but still managed to finish at a 2/1 bullish ratio of Advancing to Declining issues. Much of this week’s gains have come from Technology and Financials, which are two of the largest constituent sectors within SPX, yet markets have made no progress.
Now, Technology and Financials have both risen to within striking distance of July 2023 highs, and my expectation is that this should be a difficult level to immediately surpass.
Overall, any SPX close under Tuesday’s 4540.51 low would also violate its rising 9-day moving average (something I occasionally reference for trend following purposes). I believe this should kick off (at a minimum) a decline to test 4404 which lies just near the open-gap from Monday 11/13 to Tuesday’s open on 11/14. This is seen as the first meaningful area of trading support. However, a much deeper retracement is possible to at least the 50% retracement level of the October-November advance, which would target 4347.
Until/unless SPX can close above 4600, and achieve this on above-average participation, I’m still inclined to be near-term defensive, regardless of the seasonal bullish tendencies of this time of year. The next week should help to resolve this recent indecision for SPX, and I expect we’ll see whether Santa can truly come early (which I don’t expect).
S&P 500 (^SPX)
With regards to equities, it’s important to reiterate a few key things:
(This is being reposted from last night’s report for emphasis, as these remain important points)
- My reticence in attempting to stick with this uptrend while SPX is near 4600 has less to do with intermediate-term concerns, and is primarily short-term focused.
- Equities are up 10% in 5 weeks’ time, and Elliott-wave structure, cycles and DeMark exhaustion signals all point to the possibility of consolidation in December.
- While I respect and admire the strength of Technology in having led the charge in recent months, this has begun to stall out, as evidenced by stocks like AAPL, GOOGL, and other large-cap Tech names over the past week.
- The broader market is certainly did not rebound nearly as sharply as Technology did off the October 2023 lows. Thus, “the market” in Equal-weighted terms has some definite “wood to chop”. This is certainly evident when eyeing the technical charts of many of the Regional Banks, and Healthcare stocks, not to mention Consumer Discretionary.
- I expect that SPX and QQQ should retrace at least 50% of the rally from October before any push back up above SPX-4600 and QQQ-409 can occur. While fighting seasonal bullish trends this time of year is normally difficult, the risk/reward for investors to initiate new longs with indices right at key resistance looks challenging.
TLT is nearing resistance, and could stall out by end of week
Technically, speaking, the 20-Year Treasury Bond Ishares ETF, or TLT, (similar but reciprocal to TNX in yield terms) is nearing important levels.
I do not expect an immediate move over 95 in TLT. While DeMark-based exhaustion remains early on daily charts, I feel like the next couple days should help to produce strong resistance to this recent bounce in Treasuries (with TLT being a proxy in ETF form).
Overall, whether the PCE deflator news on Thursday is effective in causing a reversal in yields or this takes a bit more time, the risk/reward is growing poor for near-term Treasury longs, in my view, and I anticipate an upcoming reversal.
20Y+ Treasury Bonds iShares ETF (TLT)
Technology and Financials are both approaching July highs
As mentioned earlier in this report, both Technology and Financials are nearing July peaks.
This is certainly not as clear when viewing XLK, the SPDR Select Sector Fund ETF, which has broken back out to new all-time highs.
However, RYT, the Invesco Equal-weighted Technology ETF, along with RYF, the Invesco Equal-weighted Financials ETF, are both approaching July 2023 peaks. (XLF is also approaching its July 2023 peak and has not broken out.)
Thus, a stalling out in the market, (for those who are simply watching XLK), might seem unusual after its recent breakout. However, it’s important to view these sectors on an Equal-weighted basis, in my view.
The fact that two of the largest SPX sectors are now approaching prominent levels helps to add conviction to the idea of a further stallout and possible upcoming reversal.
(After all, markets have been “sideways” as both Financials and Technology have been advancing in recent days. What should happen if both of these big SPX weights now stall out?)
S&P 500 EW Technology Invesco ETF (RYT)
SPY vs ACWI still in very good shape, despite some minor stalling out
For long-term trend followers who are wondering whether it’s right to still be overweighted in the US after this year’s advance, it’s important to watch ratios of the SPY to ACWI
SPDR S&P 500 ETF Trust (SPY) vs. the Ishares MSCI ACWI ETF (ACWI).
As can be seen, despite the minor stalling out of US stock indices since July of this year and even when considering how difficult 2021 and 2022 have been in terms of performance and returns, the longer-term upward sloping trend of US vs ACWI has not shown much evidence of deterioration. The intermediate-term bullish uptrend since 2018 has been intact and this ratio lies above both 50 and 200-week moving averages which are both upsloping.
Overall, 50 week and 200-week moving averages are shown on the ratio charts of SPY vs ACWI on weekly charts from StockCharts.com. Until we see some evidence of the long-term trend beginning to weaken (and the minor sideways pattern since July does not make a compelling point in this regard) it’s still right to overweight the US stock market, in my view.
Weakening would involve this ratio undercutting the 50-week moving average initially and then breaking the long-term uptrend. At present, this seems quite premature, despite a recently falling US Dollar. Until one sees more evidence of this trend beginning to falter, I believe overweighting the US stock market vs. the ACWI is the proper course of action.
SPDR S&P 500 ETF iShares MSCI ACWI ETF (ACWI)
