For those who missed it, you can view my Tesla Stock Updated Technical Analysis & Cycles with Herbert Ong HERE.
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, in my view. 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 arguably find resistance at 503-505.
Nothing has changed in recent days, but it is important to point out that earnings have largely been good, and I expect GOOGL’s strength to kick off some more strength out of MSFT 0.88% , AAPL -1.66% , and AMZN 0.75% to help US equity indices manage a minor bounce into November’s US election.
Make no mistake, breadth readings have gotten abysmal in the near term, with only 30% of all SPX names above their 10-day moving average. Advance/Decline readings for NYSE and SPX have both nosedived, and the McClellan Summation index has also withered in the last two weeks. This kind of deterioration is normally important at short-term market peaks like what occurred this past spring and also in July of 2024. Furthermore, the downturn in Industrials and Utilities this past week are just two sectors that have weakened, which could allow for corrective behavior in both in the month of November.
Those who argue that broader breadth gauges remain in good shape are correct, of course, and indices remain structurally in fine shape. Thus, I’m not expecting that indices show any kind of major peak this year. However, unless the broader market can join this week’s Tech bounce (which lately has been retreating, Tuesday and Wednesday), then a short-term surge from the likes of AAPL and MSFT into early November might not be enough to stave off some weakness to consolidate gains.
Rather than showcase the SPX or QQQ charts within an uptrend, I believe it’s more useful to focus on Tech yet again after the early strength has been receding since Monday’s close. Daily charts of the Equal-weighted Invesco Technology ETF (RYT) have pulled back to challenge the current uptrend from August (which could prove to be somewhat important).
Overall, I suspect that Tech is close to support. Given that some Tech heavyweights are on deck for earnings between Wednesday and Friday, I’m expecting those can provide some necessary firepower to lift SPX and QQQ up further into November. This chart will be one to revisit next week, on either strength or weakness.
Invesco S&P 500 Equal Weight Technology
Here’s one Breadth reading that serves to confirm some of the recent concern
The percentage of SPX names above their 10-day moving average has begun to pull back sharply in recent weeks.
Notice that prior lows of this sort all had followed minor declines in SPX, whereas the current index price has largely just gone sideways in recent weeks, not down. (Areas marked by the Green arrows below.)
Overall, while the percentage of stocks above their 200-day m.a. remains in good shape at over 70%, the plunge in the shorter-term data to such low levels makes it necessary to keep a close watch on SPX in November.
S&P 500 Index
It’s time to buy Treasuries again
Yields have gotten up to levels I feel are strong resistance across the curve, whether it be 2, 5, 10, and 30-year Treasuries.
The US 10-year Treasury yield, shown below, has pushed higher for six weeks but now lies at a crucial intersection of two different trends. I don’t expect ^TNX -0.19% will exceed 4.50 before turning back lower in the weeks to come.
Other yields like 2-year yield (which I featured in today’s Flash Insights) are also up to key resistance and aren’t likely to make further upward progress right away.
While some might argue that yields rising is a consequence of a potential Trump presidency, it’s widely known that both parties don’t really have plans to reign in spending anytime soon. Furthermore, economic data in recent months has pleasantly surprised expectations, which has helped yields to lift.
It’s been unusual to see yields lift rapidly at the start of an easing campaign by the FOMC, and I don’t suspect this back up in yields lasts more than 1-2 weeks before turning back lower.
However, it’s important to state that yields do look like they are carving out a five-wave advance in recent weeks. This means that on any retreat in yields in November/December, additional strength in yields is still likely into early 2025 before a larger decline.
Furthermore, my cycle composite turns down in ^TNX -0.19% throughout November into December before turning up into 2025. Thus, cycles seem to confirm what technicals are suggesting regarding a potential peak in yields. I’ll address this more if/when this is confirmed in the next 1-2 weeks.
US Government Bonds 10 YR Yield
Eli Lilly’s pullback is not great news, but intra-day recovery proved impressive
LLY -6.51% ’s early 10% + decline proved short-lived on Wednesday ahead of a meaningful intra-day rebound that allowed this to hold above August lows at $747.55.
However, the stock did break late September lows at $858.81, and if this level is not recouped by the end of the week, there stands to be a chance of a range-bound situation over the next month before LLY will be able to start rallying back.
Volume expanded, as might be expected, with 23.49 million shares proving to be the largest volume since August. Thus, momentum has begun to turn more negative in the short run, though long-term trends remain arguably intact.
Key levels for the next month are $747.55 on the downside, and any ability to recoup $858.81 would be helpful to LLY in the weeks ahead.
At present this weakness is a short-term concern only, but LLY will remain part of UPTICKS list and I’ll monitor this for signs of weakness or recovery in the weeks to come.
Eli Lilly
Microsoft breaks out ahead of earnings
Similar to GOOGL’s impressive breakout ahead of earnings (and AMZN’s in Wednesday’s trading) MSFT also made technical progress before its earnings beat on Wednesday post close.
I expect MSFT to begin pushing back higher to test all-time highs reached in July, as this recent constructive breakout likely takes away the ability for investors to be able to label MSFT’s charts in a bearish fashion.
Similar to historical comments I’ve voiced in recent months and years, it’s not a foregone conclusion that a big trading range will lead to a downside breakdown. Often, these ranges end up leading back higher after consolidation. In this case, this breakout in MSFT before earnings should lead the stock higher into November before consolidation post-election.
Key levels for MSFT 0.88% lie near $468, while $408 and $385.58 are important as support. (Note, I don’t expect either of the support levels to be tested in the weeks ahead.)
Microsoft
