Equity trends remain bullish but fragile as we near the end of October. Stocks, Treasury yields, and the US Dollar look to all be close to beginning a corrective pullback, which likely starts in early November but should prove short-lived and not the start of a larger decline. Minor pullback attempts this week have failed to do much damage but should ultimately result in 5-7% declines in US Equities for the month of November. While the intermediate-term bullish thesis remains very much intact, it’s doubtful that US Equities will continue to push up into and post-election without any consolidation. Risk/reward seems poor in the short run, and SPX seems unlikely to exceed 6000 right away but could find initial resistance near 5900-5935. Meanwhile, QQQ should find resistance at 503-505.
As discussed, the following issues remain constructive for the US market:
- Intermediate-term bullish technical structure
- Healthy intermediate-term breadth levels with multiple sectors participating
- Intermediate-term sentiment gauges not at extremes
- Weekly cycle trends suggesting rallies into next Spring
- Bullish intermediate-term trends on many Magnificent 7 names
- Technology underperformance has not resulted in this sector breaking down
- China’s re-emergence should help areas within Consumer Discretionary along with global demand picture
- Short-term seasonality for final week of October is constructive for a rally into early November before any peak
- QQQ bullish pattern does not yet look complete and could allow for a final push up to 503-505 before stalling and reversing course.
Conversely, the following issues have crept up to cast doubt about US Equity markets continuing higher through both November and December without a correction:
- Weekly negative momentum divergence
- Intermarket divergence- NASDAQ is not yet at new highs, nor Transports, Small-caps
- Elliott-wave pattern looks to be in the final wave up of a 5-wave advance from August
- Lack of Bears- Equity Put/call hit 0.42 last week
- Cycle composites show Equity weakness starting in late October, and lasting through November
- Short-term breadth erosion- Percentage of SPX names above 10, 20-day m.a. have plummeted over the last month
- DeMark exhaustion- Monthly TD Combo 13 countdown signals are now present on Equal-weighted S&P 500 (RSP -0.42% ) and ^SPX -0.11%
- Technology underperformance lately looks important given that this sector is 30% of SPX and many key large-cap Tech stocks remain in trading ranges
The seasonally bullish final week of the Election year, October, might allow for some temporary strength into the end of the month but should still be followed by a 5-7% pullback in November into early December before turning back higher. As discussed, the drying up in breadth and volume seems to be a warning sign to pay attention to following an extended run. Technology has underperformed lately, and this lagging behavior combined with cyclical and sentiment-based issues should lead Equities lower in November.
I feel that SPX likely holds 5700 and bounces into late October, but that 5950-6000 should be a strong area of upside resistance. Thus, upside potential looks limited for SPX in the next month, while prices might turn lower and head to 5500 once trends at 5700 are violated.
The hourly SPX chart below shows the completion of a 3-wave decline, which would be solidified if SPX eclipses 5821. Such a move would then argue for gains to 5863. Any advance back over 5863 would make me have a higher level of conviction of a rally next week back to new all-time highs before a selloff begins in November.
Despite all these levels mentioned, the key takeaway is that upside risk/reward is starting to look poor and gains likely are limited to 5950-6000 on the upside, while pullbacks could reach 5500 on the downside. Thus, investors need to pay close attention as November gets underway.
S&P 500 Index
TSLA gains set the stage for a coming breakout
Overall, today’s gains look to have jumpstarted the momentum in TSLA again after a few months of range-bound trading.
Technically speaking, my experience is that “Gap days” like today’s price action typically are quite positive when a stock has an above-average low to high range, closes near the highs of the day, and trades on above-average volume.
TSLA accomplished all of those today. This should now set the stage for a breakout in the week to come.
While the area near 265 looks important to surpass to have confirmation that this is happening, the fact that the volume was so heavy in today’s trading could allow for price to simply surpass the September peaks and break out without finding much resistance.
Moreover, the act of getting above $265, particularly on a weekly close, would likely result in shorts being covered and breakout buyers attempting to buy the technical surge as September peaks give way.
This kind of breakout, given TSLA’s range-bound, albeit volatile, history since 2021, could allow for a much larger gain initially into early November.
The areas of importance for initial resistance over $265 look to occur at the following levels:
$296-$300 – This approximates a 61.8% Fibonacci retracement of the 2021-2023 decline and also lies near July 2023 peaks.
$364 – This would equate to a 1.382x Fibonacci alternate price projection from the initial April-July 2024 advance when measured from the August 2024 lows.
$395-$414 – This would equate to a 1.618x Fibonacci alternate price projection from the initial April-July 2024 advance when measured from the August 2024 lows. $414.50 was all-time high from late 2021. This also has a projection of a 1.382x Fibonacci alternate price projection from the January-July 2023 rally when projected from the April 2024 bottom.
Tesla, Inc.
Tesla’s weekly cycle composite is bullish into next Spring
As shown below, the weekly cycle composite for Tesla remains quite positive and should allow for an above-average rally to happen into next spring. This should be the time when all-time highs are challenged and/or exceeded.
Short-term cycles, it should be mentioned, do show weakness starting at/near the US Election next month into December. Thus, the daily and weekly cycles do not line up for the next month and diverge.
My thinking is that if US Stock indices start to turn down sometime in November for a correction, TSLA 3.28% would likely join suit for a consolidation type pullback after its sharp move higher (which might have begun today into early November).
Overall, the key takeaway, however, is that for investors within a 6-month timeframe, TSLA should push higher into next Spring, even if it needs to consolidate gains in November.
I utilized the 75-week cycle combined with a 22-week and a 16-week cycle; all put into a composite to generate the results below. (The pink line below represents amplitude, not magnitude. Thus, one should pay attention to the turns more than the extent of the movement). (This cycle composite was created by using the “Cycle Finder tool” found at the Foundation for the Study of Cycles.)
Tesla 75-week Cycle Composite
Consumer Discretionary could push back to highs given TSLA’s huge outperformance
Discretionary was the best-performing sector in Thursday’s trading, thanks to TSLA 3.28% , even on an Equal-weighted basis. (RCD) (Looking at XLY 0.11% for Consumer Discretionary tends to show distorted results given TSLA’s size)
Equal-weighted Discretionary was one of the best-performing groups over the last month, returning +2.66% (3rd best out of 11), yet performed mid-range for a 3-month basis and has lagged on a Year-to-Date (YTD) Basis.
As shown below, trends for RSPD remain positive, though they look to have carved out (or are near the tail end) of a five-wave advance from August, not dissimilar to SPX.
I expect a final push up into November in Discretionary before this sector begins a 1-month consolidation. At present, given TSLA’s strength, (and strength in other Discretionary areas like Casinos, Cruiseliners, Booking agencies) I expect some near-term outperformance.
However, as SPX begins a correction next month, I’ll be able to project the extent of Consumer Discretionary’s performance into year-end and what to expect. At present, I feel like another run at recent highs can happen but should encounter strong resistance near its all-time high levels.
Invesco S&P 500 Equal Weight Consumer Discretionary ETF
