Short-term US Equity trends look to have turned back higher Friday following a frustrating time for bulls and bears alike in recent weeks. Despite a plethora of bad news domestically and overseas, US Economic data and good earnings have helped markets largely ignore the factors that normally might be expected to ramp up volatility. Technical structure, and breadth have improved markedly in recent weeks, while sentiment is not yet bullish enough to think Stock indices might peak out. While the back half of October might prove more volatile than the first half, Friday’s rally looks likely to lead prices back to new highs for S&P and DJIA and could result in NASDAQ challenging its former all-time highs. Bottom line, Equities remain in great shape, and as discussed yesterday, I expect that Equities bottom into Rosh Hashanah and likely rally up into Yom Kippur this year.
Overall, I expect that this week’s inability to have sold off given the combination of several disturbing news events likely is a sign of strength for the US Equity market. Friday’s surge to multi-day highs should mark the start of a push back to new high territory, and I firmly believe that the Rosh Hashanah-Yom Kippur cycle likely is inverting this year.
Thus, upward follow-through should materialize next week, and might be led by Financials along with Consumer Discretionary, which both have begun to demonstrate excellent near-term signs of relative strength this past week.
Near-term SPX targets might arrive near 5835 initially, and from a time perspective, the area from 10/12 into 10/17 does stand out as having importance for a possible change in trend in October.
At present, it’s right not to discuss any consolidation, but rather concentrate on a coming advance next week which likely could take SPX back up above 5800.
Interestingly enough, quite a few triangle patterns have begun to manifest across the US Equity market in recent weeks. SPX and DJIA have both exceeded the highs of their own respective patterns. Other triangles that look important include the ones forming in DJ Transportation Average along with the Russell 2000.
Additionally, as discussed last night, a number of important Technology stocks have also morphed into triangle patterns, namely AAPL and NVDA, which represent ~10% within SPX. These are normally bullish patterns, as they’ve followed lengthy advances over the past year. Thus, I expect the triangles to all be resolved by upside breakouts in the weeks/months to come.
The chart below highlights the daily SPX pattern, which could be in a wave 5 formation from its lows in August of this year. If that were correct, then a final push to new highs is likely ongoing and started today. However, it will be important to concentrate on breadth in the next 1-2 weeks along with momentum divergences, sentiment, and DeMark exhaustion, as all of these might come together to show a confluence of price and time-based resistance starting in about two weeks. For now, the chart pattern looks quite bullish and a move back to new highs seems forthcoming.
S&P 500 Index
Financials is just breaking out of a triangle pattern which bodes well for this sector to lead in the weeks ahead
The Equal-weighted Financials ETF (RYF) by Invesco managed to break out above the upper border of its symmetrical triangle pattern on Friday.
As I wrote earlier in Flash Insights mid-day on Friday- (“Today’s move in the banks is particularly impressive. S&P Banks index is higher by 2.3% and we’re seeing Triangle breakouts by the Equal-weighted Financials ETF (RYF) This is very important and positive to the US Stock market in the short run and stocks like DFS COF SYF and MTB are all making really significant gains today, technically speaking. Financials and Discretionary are the two top performing sectors today, but it’s the banks that are a standout and the economic strength coinciding with rates rising has been helpful to this sector today. Today’s move puts Financials in the spotlight for the weeks ahead, and I expect some good relative strength out of this sector. Financials as a sector remains a Technical overweight.”)
Overall, each of those names mentioned above looks attractive to me for the month of October, and I suspect that the charts of KRE and KBE will start to push out of their own respective triangle patterns higher in the weeks to come.
Invesco S&P 500 Equal Weight Financial ETF
Airlines look to be on the verge of a two-year trend breakout
One of the strongest sub-sectors within the Dow Jones Transportation Average lately have been the Airlines, which have started to turn sharply higher in the last month.
Given that I expect a coming breakout from the Transportation stocks, it pays to see whether Airlines might also be the group that leads this strength and participates in the weeks ahead.
This weekly chart of the US Global Jets ETF (JETS), which is representative of the Airline industry, has been consolidating in range-bound fashion for the last two years as part of a larger consolidation pattern.
This is one group that looks attractive and seems right to position long ahead of the coming breakout back above its resistance trendline. Stocks like DAL, SKYW, and UAL are my favorite of the Airlines.
Breakouts above $21.38 should happen in the weeks/months ahead, which should make JETS attractive for a move up to $26. Furthermore, stocks like DAL, SKYW and UAL should also demonstrate their own breakouts and make this group attractive.
U.S. Global Jets ETF
Cruise-liners also setting up well for a coming breakout
Outside of the Airlines, it’s also worthwhile to concentrate on the Cruise-liners, a group which also has shown consolidation over the last couple years.
My expectation is that this former lagging group, along with Airlines, should break out of its consolidation to the upside, making it right to position long ahead of the move. Given that Consumer Discretionary has begun to show relative strength along with the DJ Transportation Avg. being on the verge of breaking out, it’s right to concentrate on these two basing sub-sectors which should participate higher in the weeks to come.
CCL, Carnival Corporation is shown below, depicting a one-year triangle pattern that could now be resolved by a push to new multi-month highs. Any move back up over $20 would lead to a rally similar to what happened back in early 2023 when CCL began to move higher parabolically.
Given that three separate peaks have been made near $20, any instance of this level being exceeded should allow for the start of a burst of acceleration higher in the months to come.
CCL US Equity (Carnival Corp) Daily
