US Equities and Treasuries technically 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. Near-term cycles still point to possible consolidation ahead of 12/22 before a year-end rally. This should be led by a bounce in Yields and the US Dollar.
As discussed last week, Treasury yields look to be starting to turn back higher, and I suspect the CPI report might prove to be the catalyst for TNX getting back over 4.30%. If this happens Tuesday, then a sharper rally in yields should commence with initial upside yield targets near 4.55%, then 4.65-4.75%. This would likely prevent stocks from making too much further headway given recent correlation trends. However, Yields have indeed risen over the last few trading days and stocks thus far have not been affected.
Overall, the breakout in groups like Semiconductor sector ETF’s along with SPX and QQQ can’t be ignored and is difficult to say this doesn’t look constructive. However, as charts below show, Equal-weighted SPX still has some work to do, and I feel that the combination of equal-weighted stock indices hitting resistance while yields turn higher might indeed prove to be a catalyst for trend reversal in the near-term.
If the Equal-weighted S&P 500 ETF from Invesco (RSP 0.44% ) gets above July peaks, then arguably it will be right to simply ignore calls for consolidation until January. At present, it’s important to mention that it’s not just RSP that is hitting critical levels. Six Equal-weighted sectors are also right at multi-month trendline resistance: Materials, Discretionary, Financials, REITS, Communication Services, and Utilities.
Furthermore, Equal-weighted Technology along with Equal-weighted Industrials are just below prior peaks from 2021 and July 2023, respectively. Overall, I continue to think that awaiting consolidation for non-traders makes sense, vs. chasing this rally here, given that Treasury yields and the US Dollar have begun to rally. See the daily RSP chart below.
Equal-Weighted S&P 500 ETF
Semiconductors outperformed on breakout; Resistance lies at 170-1 for SMH
The breakout to new 2023 highs for Semiconductor ETF’s like Vaneck Semiconductor ETF (SMH) keeps this trend bullish, technically speaking and despite warnings on possible stalling out in the broader indices in the short run, SMH has shown little to no real evidence of any meaningful deterioration.
Monday’s (12/11) push back above November peaks at $165.44 should allow for a final push up to $169-$171 before this finds short-term resistance.
However, given the extent of the bullish breakout, I suspect that SMH likely should rally up to $173.50-$174 into late January, which should be a stronger target for SMH.
Vaneck Semiconductor ETF
Homebuilders have continued to gain ground as yields have retreated
It continues to be right to follow the trends in Homebuilders, and both XHB (S&P Homebuilders SPDR ETF) and ITB -0.67% (US Home Construction ETF ) have both achieved meaningful breakouts in the last week.
This recent surge has coincided directly with US Treasury yields having pulled back over the last couple months, and given the prospect for yields falling in 2024, additional gains for the Builders might be likely.
This ITB chart shows the recent breakout above July peaks, which should technically help ITB rally to resistance at $105 before stalling out.
Stocks like BLD -1.59% , BLDR 0.56% , PHM -1.63% , DHI -1.32% and LEN -1.59% look to be the most technically appealing within this group. Any consolidation in the weeks ahead should create an attractive opportunity for these names, technically speaking.
US Home Construction ETF
China’s FXI might require a January bottom before reversing back higher
Chinese Equities remain difficult to embrace technically given several failed breakout attempts throughout 2023.
However, interestingly enough, when eyeing FXI 1.38% on DeMark’s Symbolik software, we see the presence of a TD Sequential 12 count on the monthly chart.
This would require a January 2024 opening print under $24.89 (current levels) to trigger this TD Sequential “13 Countdown” exhaustion. Furthermore, once confirmed, this would have a much higher likelihood of finally leading to the much awaited bounce for Chinese Equities.
Thus, while trends show this current month to potentially be the 5th straight month of losses for FXI, I suspect that as 2024 gets underway, there should be some relief for Chinese equities.
I’ll comment on this early next year once a few more technical signals line up again to present FXI as an attractive risk/reward. However, I feel that it’s unlikely that 2022 lows at $20.87 should be violated. Therefore, FXI is increasingly getting more appealing from a risk/reward standpoint. Yet trends remain bearish, and “Picking spots” has proven difficult.
One final comment revolves the degree to which China’s CSI Internet ETF (KWEB 0.60% ) has been outperforming FXI lately. Thus, for investors who have an interest in Chinese Equities, KWEB is more technically appealing at the present time, vs. FXI. However, I suspect that both might work as 2024 gets underway.
China Largecap ETF
