US Equities and Treasuries look to be near resistance, while the US Dollar index has begun to rally. A majority of the major sectors are also now right near meaningful intermediate-term downtrends. Until we can see proof of downtrends being convincingly broken across the board, I still view current levels as being a poor risk/reward for new investments without consolidation. Weakness possible into 12/23
Similar to recent days, there was far more to discuss in Treasury, Commodity and FX markets than with regards to US Equities. Early US equity strength was repelled, and SPX now lies within 2 points of the 11/20/23 close, more than two weeks ago.
At present, there are sufficient reasons to expect consolidation over the next few weeks, which I’ve discussed in recent notes. However, the degree of strength out of Financials and Industrials are certainly positives for the US Stock market overall in recent weeks. Increasingly, it’s becoming more clear that any selloff likely will prove short-lived and likely not erase more than 62% of the advance from late October before turning back higher to new highs into 2024. I’ll discuss 2024 targets on 12/14/23.
Many investors have turned to focusing on Energy given the lethargic price action out of US Equity indices over the past two weeks. Wednesday’s breakdown in WTI Crude futures under November lows likely is going to lead to another 3-5 days of underperformance before this can stabilize.
Furthermore, investors who have exposure in Energy should look towards next week as having more importance for when Energy might stabilize given the possible alignment with counter-trend exhaustion signals as prices near 2023 Spring lows. While I am optimistic that Energy will rebound in December, any imminent stabilization looks premature given Wednesday’s decline.
Daily charts show the US Oil Fund (USO -3.17% ), which has lost more than 20% over the last 10 weeks. There are reasons for optimism for Crude, and for USO, but stabilization likely happens at a bit lower levels. A couple points are worth mentioning:
- The area near $62 looks quite important given trendline support from Spring 2023
- DeMark exhaustion signals could be complete using both TD Setup counts along with TD Sequential and TD Combo signals potentially by next week.
- Elliott- wave structure now shows this current decline being close to completion.
Overall, I expect that USO -3.17% likely might weaken a bit further in the next week. However, prices are getting very close to an attractive risk/reward situation. For those eyeing USO -3.17% , the area of importance likely lies from $62-$63, with $62 being strong support.
US Oil Fund
Energy’s relative chart to SPX has not been broken
One key point regarding Energy as a sector heading into end of year revolves around how the recent weakness plays into the larger weekly chart.
As relative charts of Invesco’s Equal—weighted Energy ETF (RYE) vs. Invesco Equal-weighted S&P 500 ETF, (RSP 0.77% ) this short-term downtrend remains part of a larger uptrend.
Thus, this selloff, which has taken many parts of Energy to oversold levels, should now represent an attractive risk/reward situation to consider Energy heading into Year-end.
While a bounce might take a while to play out given the downward severity of momentum in recent months, Energy will be nearing a seasonally bullish time in 1H 2024 and cycles show a good likelihood of WTI Crude starting to rebound.
Equal-Weighted Energy vs. Equal-Weighted S&P 500 Ratio
German DAX back to new all-time highs
The DAX has now managed to push back to new all-time highs this past week! However, similar to UKX having broken out before stalling out, I suspect this might also be the case with the DAX.
Weekly charts going back over the last decade illustrate the rising trend of higher highs and higher lows at work since 2009. When connecting the multi-year long trend of high to high, one can see this intersects just above current levels.
Overall, while this move in DAX -0.12% is certainly bullish technically, it likely will require consolidation before this can advance above 18,000.
Note, charts of the EuroSTOXX 50 ETF (FEZ 0.27% ) along with the Ishares MSCI Eurozone ETF (EZU 0.35% ) are not as bullish technically as charts of the DAX and will take time before moving to new highs. However, at present, this move in European indices like DAX and also EuroSTOXX 50 (which might make a weekly close at the highest levels in more than a decade by this Friday’s close at current levels) still looks to extend in the near-term.
German DAX Index
SPY vs FEZ – Near-term downtrend in US outperformance looks to be nearing completion
One interesting insight on the recent push in many European indices back to new highs concerns the long-term view of SPY vs FEZ 0.27% .
The entire bear market selloff in US stock in 2022 resulted in underperformance by US vs FEZ.
However, one can see on weekly charts going back since 2012 that this relative decline failed to undercut the long-term trend. Furthermore, throughout much of 2023, US stock indices have been outperforming Europe, as seen by the bounce from April 2023 into September of this year.
Bottom line, while the trend for US stocks has indeed underperformed FEZ since September, as shown by this recent dip in the weekly ratio chart of SPY to FEZ, it hasn’t broken the larger uptrend.
Overall, I don’t sense that European stock indices are ready to begin outperforming US Stocks.
However, this will be a relative chart to watch carefully into next year. At present, this decline in SPY relative to FEZ likely should be complete in the next few weeks in the short run.
Thereafter, I expect a meaningful period of outperformance in US vs Europe into and through next year.
SPY ETF vs. FEZ ETF Ratio
