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, but short-term warning signs are starting to appear on the horizon. This might allow for a minor peak to appear within 1-2 weeks. SPX seems unlikely to exceed 6000 right away. Meanwhile, QQQ should find resistance at 503-505.
October expiration week kicked off with sharp Equity gains, and despite a lack of supportive market breadth early on, this improved into Monday’s close to show three sectors having exceeded 1.00%: Technology, Utilities, and REITS.
While this Technology comeback is certainly positive, it might be difficult for SPX to immediately exceed 6000 and also for QQQ to surpass 504.
As shown on daily SPX charts below, the current Eliott-wave structure shows a clear five-wave advance from August lows. While this technical structure and momentum remain short-term bullish, this should be the final stage of this rally from early August (if my labeling is correct).
Furthermore, both SPX and QQQ do appear to be nearing important short-term targets in price and time which might require consolidation into November before expecting that an uninterrupted rally straight up can occur into end of year. (I explained the short-term technical positives and negatives of this rally in last Friday’s report, which should be revisited for those who have any questions.)
Overall, the preponderance of the evidence still shows the broader US Stock market to be in good shape, with not many intermediate-term warnings. However, over the next 1-2 weeks, there looks to be an increasing likelihood of a short-term market peak which might materialize in October, leading to minor weakness into early to mid-November.
At present, I suspect that this could start to bring about a short-term peak near Thursday, 10/17, and also 10/28-11/1. This is followed by weakness into mid-November. Until SPX breaks its 10-day moving average, currently at 5748, I don’t suspect it’s proper to pay attention to the warnings, and it’s still right to expect higher prices into next week. However, once price starts to show evidence of jitters, then a consolidation period might be getting underway. I’ll discuss this once evidence appears.
S&P 500 Index
Russell 2000 pattern is growing stronger in the near term
The triangle pattern that governs IWM’s consolidation pattern since July is growing increasingly more positive following last week’s minor trend improvement.
While more work is left to do before saying IWM has successfully engineered a larger intermediate-term breakout, this recent strength should help IWM push higher to test 224 which lies near the highs of this triangle pattern since July.
Given the ascending lows of this pattern which are occurring at a much steeper rate than the former peak-to-peak resistance from July, it’s not wrong to call this pattern an “Ascending Triangle” pattern.
These normally are resolved by a movement above resistance (which in this case, would occur over $224).
Such a development would truly allow Small-caps to “kick into gear” in a more pronounced manner, helping this group to finally begin to outperform Mid, and Large-cap stocks in all likelihood.
My time of importance for Small-caps lies from November into next May. This should represent a time of broad-based rally for the Small-cap sector and possible outperformance. If when $224 is exceeded, it will be possible to project up to all-time highs near $244, which is the first legitimate upside technical target for IWM.
iShares Russell 2000 ETF
SOX gains up to mid-July levels is a temporary positive
Given SOX’s daily close-up above late September highs, it’s likely that a bit more strength should happen in Semiconductor names this week ahead of a possible stalling out.
The fact that SOX stalled out just above 5300 in both August and then September and now is exceeding 5356, it’s seen as a structural positive that should carry SOX up to 5519-38, a zone which would mark a combination of TD Propulsion resistance, along with a 100% alternative projection from the first rally off this past August’s lows.
Above there should help SOX reach 5584, but I find it difficult for SOX to move back to all-time highs right away, technically. Thus, rallies over the next week might encounter resistance at marginally higher levels before some resistance sets in.
This should come about based on traditional cycles, short-term overbought conditions on further gains, combined with DeMark exhaustion. Thus, the minor breakout that happened today is certainly a structural positive, but yet is not thought to lead back to new high territory right away.
NVDA which is now nearing former all-time high peaks at $140.76, is expected to show some stalling out later this week, and an immediate move back above all-time highs might not be sustainable just yet.
PHLX Semiconductor
Energy has begun to stall out again at resistance following bounce
WTI Crude fell over 2% on Monday and seems to have stalled following the rapid short-covering rally in recent weeks as Bloomberg reported that “Hedge funds fled bearish bets against Brent Crude at the fastest pace in eight years as war risks ratcheted up”. (While normally this might seem bullish, from a contrarian standpoint, the largest covering of Short bets in eight years is likely ill-timed given the ongoing technical weakness.)
Moreover, this past weekend’s China inaction on the 2 trillion yuan in fresh stimulus might have also dashed hopes for Crude which has largely failed to rally all that much on China’s huge surge in recent weeks.
Technically speaking, both WTI and Brent Crude seem to have stalled up near trendline resistance from this past Spring, while Equal-weighted Energy ETF (RYE) from Invesco also has found strong resistance at current levels over the past couple of weeks.
Daily RSPG charts, shown below, highlight this area of importance near $81 that has acted as strong resistance following this recent bounce.
Technically speaking, the Energy sector remains a technical Underweight, and this recent bounce should likely stall out and begin to turn back down to breach September lows.
The combination of cyclical downward pressure along with weak supply/demand data and a break to multi-year lows in Energy vs the SPX should make Energy outperformance difficult in the months to come.
In the chart below, it’s difficult to see RSPG exceeding $85, while a pullback looks more likely to test and breach which should undercut September lows at $72.86. If/when this occurs, it will be possible to measure down to the mid $60’s as an initial target for RSPG.
S&P 500 EW Energy Invesco ETF
