Short-term US Equity trends have still grinded largely sideways in recent weeks following the bullish breakout back to new all-time highs for SPX and DJIA. Despite minor weakness following the escalation in the Middle East in recent days, Equities have failed to show much real deterioration, and breadth remains near the highs of the year. While the back half of October might prove more volatile than the first half, recent sideways consolidation does not seem indicative of that which might kick off any type of real selloff, despite all the negative headlines globally. Overall, without evidence of any serious technical damage, it’s difficult turning too negative on US equity markets. I expect that the Rosh Hashanah/Yom Kipper cycle very well might invert this year, leading to strength into Yom Kippur, not vice versa.
Overall, after just three days of selling pressure in the last five, S&P remains within 1% of all-time highs made just four trading days ago. Breadth has proven solid in recent weeks, and momentum and technical structure continue to be in good shape. Technology has “taken the back seat” in recent weeks to strength seen out of Industrials, Materials, and Consumer Discretionary.
Yet, Technology has not materially weakened enough to suggest that any sort of peak is happening within the sector. Incidentally, stocks like AAPL show beautiful bullish triangle patterns, while the Software ETF (IGV 0.85% ) is on the verge of its own breakout back to new all-time highs. (Stocks like CRM 3.47% and ORCL 0.53% are particularly positive here technically).
While a rally back to new all-time highs into Yom Kippur might signal a potential time to “take off” some risk given negatives like bearish weekly momentum divergences, and/or bullish sentiment, these aren’t factors now that would signal an imminent downturn.
As shown below, this fractional weakness in recent days has done little to no damage to the broader trend. ^SPX 0.24% has shown just scant consolidation after its breakout to new highs, and still appears likely to push back to new all-time highs sometime this month.
However, that being said, until SPX reclaims 5765, one can’t rule out a “Gap-fill” from 9/18 near 5660, and below that lies last month’s August peaks (Former resistance now becomes support) and 5625-30 which looks very strong.
Ideally, this consolidation should be complete this week and begin to lead higher into mid-October.
S&P 500 Index
China Equity ETF’s surge is ongoing, with no evidence of any reversals in sight
With 2 days left in the week, FXI 7.40% has advanced almost 40% in the last three weeks since bottoming 9/10 at 25.46. In technical analysis, they call this phenomenon a “runaway gap” as daily charts show three different gaps on heavy volume as China’s stimulus got underway. While momentum is certainly overbought on a short-term basis, monthly RSI registers 63, so we’re NOT as overbought as 2021, NOT as overbought as Jan 2018, NOT as overbought as April 2015 and certainly NOT as overbought as October 2007.
My target for FXI is 37.89, or a 50% retracement of the entire decline from 2021 into Oct 2022, which also lines up with a meaningful support trendline drawn from October 2008 lows. (Former support should now become resistance).
It’s right to stick with FXI 7.40% longs for now, but on further gains over the next 3-5 days, this will certainly start to appear like a poor short-term risk/reward. As of today, 10/2, there’s insufficient evidence to suggest this should peak out just yet.
iShares China Large-Cap ETF
Crude oil’s bounce should prove short-lived into next week
Lot of investors wondering if Crude is bottoming, and technically I still feel that’s a difficult argument to make. Structurally trends remains bearish, Elliott patterns suggest a good likelihood of $50 oil, DeMark exhaustion has failed to show any signals on Crude, nor most Energy ETFs, and cycles remain bearish until Summer 2025.
Thus, while a short-term bounce is certainly underway for Energy as a sector as Geopolitical risk has elevated, I’m skeptical that this proves long-lasting. Technically speaking, bounces would be used to trim/take profits/hedge Energy as of early next week and upside targets might materialize between $73.50-$74.50 in generic WTI Crude Oil futures before heading back to its lows.
Light Crude Oil Futures
Difficulty reigning in Oil supply likely results in further Crude losses after this bounce is complete
The Wall St. Journal reported recently that Saudi Oil Minister Prince Abdulaziz bin Salman issued an unusually direct warning: “Crude prices could fall to $50 if Iraq and Kazakhstan continue to fail to implement output cuts”. Baghdad apparently continues to pump several hundred thousand above its daily quota, as this chart shows below. (Source: Bloomberg).
This “cheating” by Iraq and Kazakhstan could bring about a glut next year, and Financial Times (FT) reported that Saudi Arabia has grown frustrated and has abandoned its $100 price target, growing frustrated by having to shoulder most of the burden.
So, while the assault by Iran and likely retaliation by Israel might prove more aggressive than back in April, physical production and flows should ultimately matter more than sentiment on geopolitical tension ramping up. Technicals remain bearish, and this bounce should prove short-lived into next week.
Unpaid Oil Debts
Equity Put/call moving averages don’t seem to suggest it’s time for a big market decline
Despite various short-term sentiment polls having registered bullish readings in the past week, others like Put/call data don’t seem to be signaling much concern.
Historically, it’s right to view this data from a contrarian perspective. Thus, a low Put/call signals excessive amounts of Call options being traded vs. Puts and can normally be a time when US Equity indices peak out.
Conversely, abnormally high Put/call data normally happens during sharp selloffs, which drive investors to buy put options at an equal pace as Call options. Whenever the Equity put/call ratio nears 1.00, or an equal amount of Puts vs. calls, I tend to watch other indicators closely for evidence of a market bottom.
Lately, the Equity put/call data (when smoothing daily readings out using a 13-week moving average) looks very much “Mid-range” or neutral and not excessively bullish, nor bearish.
As this Bloomberg chart since 1997 shows, during early 2000 there was a very low moving average of Equity/Put call ratio that retrospectively turned out to be a major market peak. (SPX peaked out on 3/24/00 and fell into a bear market until early 2003.
The next lowest reading on this moving average occurred in Spring of 2021, which famously coincided with another large bull market peak on 11/17/21 (NASDAQ, DJ Transports, Europe) while SPX peaked out the first week of January 2022.
These low readings in the 13-week average of Equity Put/call ratio were certainly important.
Conversely, this chart shows the spike into 2008/2009 which ended up representing a low for the US Equity market (NASDAQ bottomed in 2008) while SPX bottomed in Spring of 2009.
Other spikes in 2011, 2016, and 2018/2019 all look to have coincided with market lows within a short period of time.
Unfortunately, as we’ve just entered Q4 of 2024, we see this Put/call having churned near the mid—point of the last 25 years.
I suspect this Neutral reading still supports a bullish case for Equities given the uptrend from 2020 and more recently from 2022/2023. Until/unless this moving average of Equity Put/call starts to plummet back to former lows from 2021, it’s safe to say that this particular input for Sentiment remains rather neutral, not bullish nor bearish.
Thus, for many who claim the stock market is either quite optimistic or pessimistic, this ratio would suggest both views are wrong. An Election year like 2024 seems to have brought about very muddled behavior with no clean insight to be gleaned on sentiment at this juncture.
PCUSEQTR Index
