Near-term trends for US Equities have stalled following sharp uptrends over the last month and look susceptible to consolidation in the weeks ahead. Treasury yields and US Dollar look to be bottoming out. Equity indices might temporarily peak this week and pullback ahead of a rally into 2024. At present, precious metals, Crude oil, and Cryptocurrencies are more attractive than Equities over the next few weeks.
Thursday’s reversal looked important for Treasury yields and the US Dollar while Equities managed to close mixed, with positive closes from SPX and DJIA to finish the month, while NASDAQ finished lower by -0.35%.
Technology and Financials sectors lie right near July 2023 peaks, and these levels should be challenging to exceed in the days/weeks to come without consolidation.
As discussed in recent days if US Equity markets have been roughly flat this past week while Technology and Financials have advanced, then it might prove difficult for an immediate move above SPX 4600 like many investors expect heading into December (For those that missed my reasoning as to why Stocks and Treasuries might be ripe for trend reversal, kindly see my Technical reports and Videos from Monday-Wednesday of this week)
Technology’s underperformance coupled with QQQ pulling back to multi-day lows vs SPY in relative terms likely should translate into continued difficulty in Technology outperforming this coming month, particularly on a spike in Interest rates.
Overall, technically speaking, it’s easier to make the conclusion that rates and US Dollar have begun to turn up, then it is (just yet) to claim that stocks have definitely peaked out. However, momentum has begun to wane in the very near-term given the sideways churning over the past week. I suspect that a downturn in US Stocks is likely over the next few weeks, but likely could prove short-lived and allow for a Santa Claus rally following December expiration. Given the boost in short-term sentiment coupled with one of the best monthly bond market rallies in 30 years and Treasuries and Equities having outperformed sharply for November, I’m expecting consolidation before this rally can continue.
I’ll focus today not on the S&P 500, but on the US Dollar index (DXY) which broke its downtrend from early November on Thursday (11/30). Both DXY and US 10-Year Treasury yield index (^TNX 2.69% ) made sharp reversals on Thursday, and I suspect this could prove challenging for US Stocks if this move continues given recent correlation.
Short-term technicals along with Elliott-wave patterns suggest that both yields and US Dollar could be bottoming in the short run. I’ll discuss this more in the days to come, but these instruments should be on the radar for all investors in the weeks ahead.
US Dollar Index
Crude should still push higher in the weeks to come, despite Thursday’s setback
Technically speaking, WTI Crude’s sudden mid-day reversal (from Up to Down) shouldn’t be read into too seriously. For investors paying attention the early anticipation of a possible additional 1 million barrel/day Output cut failed to materialize as expected.
It was revealed that the virtual meeting ended without a formal decision on output cuts, but that countries would be announcing their own voluntary reductions. This announcement complicates the fundamental picture possibly as it has introduced far more uncertainty into the process.
Technically speaking, cycles and short-term technicals remain positively sloped for gains in the weeks to come. While this might not officially get ironed out until January, it’s likely that Crude can still push higher to the low to mid-$80’s, making Thursday’s new developments a potential Non-event.
Technically until/unless $73.50 is violated, it’s still right to expect rallies in Crude over the next few weeks into mid-to-late December, and I anticipate that the Energy sector can likely outperform other areas of the market, such as Technology in the short run.
Crude Oil Futures
Salesforce.com breakout of July peaks for this “Super-Granny stock” is bullish
While Technology looks to have risen to resistance, Software stocks like CRM 0.60% managed to show very good performance on Thursday post-earnings.
As many clients remember, CRM was the latest addition to Tom Lee’s Super-Granny list this past month, given its superior technical setup and fundamentals.
The stock’s ability to have exceeded July peaks is quite positive technically and likely helps this rally back to adjusted targets of $272, then $312.
While short-term stretched in the near-term, any December weakness back under $240 would make this quite appealing from a risk/reward perspective.
The fact that July 2023 peaks were exceeded should translate into this latest rally from October likely approximating the initial rally from late 2022 in some ratio of price and time.
Salesforce
AAII sentiment poll shows an alarmingly low level of “Bears”
This past week’s American Association of Individual Investors (AAII) poll has widened out to nearly 30 points between bulls and bears this past week.
The Percentage of bullish investors reached new six month highs, while bears plummeted under 20%.
As can be seen the Bulls-Bears spread has now neared levels from July 2023 and is approximately near levels reached in mid-2021. Moreover the level of Bears has now reached new two-year lows.
While the 4th Quarter normally results in heightened levels of bullish sentiment, I view this escalation to be concerning given that Technology and Financials sector ETF’s are right near resistance while the VIX recently plunged under 12.50.
While other sentiment gauges aren’t as optimistic, my takeaway on sentiment using multiple sources is that it’s fair to say sentiment is no longer bearish.
CFTC data shows a neutral reading, which has surged from bearish levels over the last two months. Furthermore other polls like Investors Intelligencce and CNN’s Fear and Greed Index have also gotten optimistic.
Overall, sentiment is certainly just one piece of the market puzzle. Yet when extremes in bearish sentiment are reached, it’s normally wise to be patient on initiating new positions for those with shorter-term timeframes, particularly following a 10% rally in the last five weeks.
AAII Bull and Bear Index
