US Equities remain on good footing, despite the recent backing up in US Dollar and US Treasury yields over the last couple of weeks. Both SPX and DJIA have successfully pushed back to new all-time highs, and NASDAQ should approach its own all-time highs within the next week. Moreover, most of Europe along with Japan is now signaling that a coming pushback to all-time highs could be getting underway. Overall, I expect that risk assets should still work well into October expiration before a possible stall out into a traditionally very negative seasonal week for stocks. For now, technical structure, momentum, and breadth have improved markedly in recent weeks, while sentiment is not yet bullish enough to think Stock indices might peak out. SPX target lies at 5835, and QQQ should find resistance at 503-505.
The combination of Technology, Industrials, and Financials sectors all breaking out of triangle formations back to new all-time highs is thought to be particularly good news for the prospects for US Equities over the next week.
While some short-term deterioration in market breadth has occurred over the last week on the sideways action in US stocks since mid-September, Wednesday’s move is likely to allow for continued strength in the broader indices over the next 3-5 trading days.
It remains the case that intermediate-term breadth along with momentum and technical structure continue to look quite bullish, and this rally back to new highs has certainly been led by more than just Technology.
As shown below, SPX’s consolidation since late September looks to have been officially resolved by Wednesday’s sharp advance. This looks likely to lead SPX up to 5835 initially, and should also coincide with Equal-weighted S&P 500 to advance back to new all-time highs as well. QQQ has upside targets initially at 503-505.
While I do harbor short-term concerns if SPX gets above 5830 given the negative effects of waning momentum on slowing price action since mid-September, Wednesday’s pushback to new highs looks to be a definite positive over the next week.
S&P 500 EMINI FUT
Cruise liners show big breakouts, aiding Consumer Discretionary performance
Discretionary has finally begun to show some strength in Equal-weighted terms over the last month. RCD, as a gauge for Equal-weighted Consumer Discretionary, is higher by +7.21% on a rolling one-month basis, the third-best performance of any of the 11 major sectors.
Given that this sector is only up +8.58% YTD, one can see that the majority of this strength has just recently arrived and is being seen in many parts of Leisure and Entertainment, including Hotels, Booking agency stocks, and more notably the Casinos and Cruise liners.
This latter group made very strong gains on Wednesday, and stocks like NCLH -3.45% and CCL -2.49% made meaningful breakouts which bode well for additional outperformance over the near term.
Daily charts of Carnival Corp (CCL -2.49% ) are shown below, which show price having just exceeded a more than one-year triangle pattern going back since Summer 2023.
CCL, NCLH, and RCL are good proxies for the Cruise liner subsector within Discretionary. Moreover, this looks to be quite bullish, with RCL 0.02% being the most attractive within this group. NCLH -3.45% and CCL -2.49% which were both up over +7.00% on Wednesday, are due to “play some catch-up” and are also attractive, but to a lesser extent.
CCL, as shown below, could move to the mid-$20s initially as a result of this week’s breakout.
While China’s Equity recovery has begun to stall out in the short run, many stocks of Travel companies, Casinos, and Cruise liners have shown rapid improvement given the breakout in China.
Carnival Corporation
Financials along with Technology have just emerged from triangle patterns
This week’s push to new all-time highs in both Technology and Financials, not to mention Industrials, is a positive development for the broader stock market. As seen below, the Equal-weighted Financials ETF, RYF, has pushed above September 2024 highs which constitutes a breakout of this pattern.
While Financials had lagged performance over the last month as a result of its triangle pattern, this push to new all-time highs on a daily close (for both Equal-weighted RYF, and cap-weighted XLF -0.47% ) is seen as a real tailwind for stocks between now and next Friday.
I expect this could bring about some further stock market gains into October expiration before markets possibly show some near-term stalling out.
Invesco S&P 500 Equal Weight Financial ETF
Discretionary likely could stall out into late October
While the movement in the Casinos and Cruise liner stocks is thought to be a definite short-term positive for both of these groups, the Consumer Discretionary (“Discretionary”) sector is going to face a difficult time continuing its rally into year-end after gains of recent weeks.
As ratio charts of Discretionary to SPX show below (both in equal-weighted form) this rally remains on course in the short run and Discretionary is likely to show additional near-term outperformance into October expiration.
However, thereafter becomes a bit difficult for two important reasons:
- Initially, time-based studies using DeMark indicators indicate there could be a weekly TD Sell Setup in the ratio of RCD to RSP -0.91% following this possible further runup over the next 1-2 weeks.
- A lengthy downtrend line intersects directly above current levels on this ratio (RSPD/RSP) which I suspect will result in Discretionary stalling out and likely underperforming during the month of November.
Thus, it’s very difficult to make the case of Discretionary continuing this recent surge of outperformance much further without a stalling out. My own technicals suggest that consolidation is highly likely for Discretionary starting in late October into November.
Until then, it’s likely that the next couple weeks should still show decent outperformance across the Discretionary sector, and Cruise liners, Casino stocks, Booking agency stocks, and Hotels might all show outperformance vs. the broader market.
RSPD/RSP
