Equity trends remain bullish from early August but have shown mild consolidation over the last two weeks which has resulted in a 2% decline in SPX. While various sectors like Technology, REITS, Industrials, Energy & Utilities have all drifted lower since mid-October, there hasn’t been sufficient damage towards thinking a big selloff is underway. Both US Dollar and US Treasury yields are all getting close to technical levels where they should stall out and turn lower this month. Overall, I suspect that rallies in both US Equities and Treasuries occur after the US Election as uncertainty gives way to clarity, at least with regard to congressional races. SPX should find initial resistance near 5900-5935. Meanwhile, QQQ should find resistance at 503-505.
SPX price action has proven quite choppy over the last month, but this hasn’t served to deliver much, if any, of the correction that is normal during August-October of most Election years.
Rather, gains in August, September and October now are starting to fizzle out a bit as indices have reached the US Election, and breadth gauges show a pronounced pullback in the “Percentage of SPX names above their 10-day and 20-day moving averages”.
While investors seem to be taking steps to derisk ahead of the Election, if VIX positioning is any guide, ideally, SPX shouldn’t undercut 5650-70, which stands out as solid support going back since July based on numerous former peaks and troughs.
Importantly, any post-election bounce needs to bring about a massive broadening out in the market to help SPX and QQQ avoid a possible late-month decline, which looks possible given cycles and breadth deterioration.
My expectation is for a rally post-election, but one which disappoints in the degree of broad-based strength over the next week. Thus, while Technology and Healthcare might carry the market in the short run, any lackluster bounce that fails to impress in market breadth would likely make the SPX vulnerable into late November.
At present, the hourly chart configuration makes this decline seem somewhat innocuous given the corrective nature of the recent pullback, combined with bullish chart structure on names like AAPL, NVDA, and many software names. Additionally, the comeback in Healthcare over the past week is also a supportive factor on an intermediate-term basis for SPX given the degree of weighting that Healthcare represents within SPX.
Overall, mild weakness is certainly possible on Election day, but should not undercut 5650 and is expected to try to bottom out near early October lows (shown below near the black horizontal line) before turning higher. Evidence of the gap at SPX-5811 being filled and exceeded would then point towards a move to 5950 in all likelihood.
S&P 500 Index
Software is arguably breaking out vs. Semiconductor stocks
One interesting development concerns the sudden strength in Software over the last few months, which has shown better relative strength than Semiconductors.
Stocks like PLTR 22.77% , APP 4.39% , MSTR -0.95% , TEAM 1.00% , CRWD 2.37% , and FTNT 2.08% have all gained more than 35% in the last three months and have helped ratio charts of IGV 1.44% (IShares Expanded Tech Software ETF) achieve a minor breakout vs. SOXX 0.77% (Ishares Semiconductor ETF).
Many names within the Semiconductor space have struggled to keep up with leaders like NVDA, and when looking at QRVO -1.05% , ASML 0.18% , SWKS 1.78% , TER 0.14% , AMKR 1.19% , these have all shed more than 9% in the same three-month period.
As many who keep close track of the Philadelphia Semiconductor Index (SOX) are aware, this remains down approximately 1000 points off its July 2024 peak and has not yet shown compelling signs that a move back to test/exceed all-time highs is underway.
Conversely, IGV broke out in late September back to new all-time highs above its former peak from late 2021 and remains technically sound.
Overall, many who have ignored Software in favor of the Magnificent 7 and/or AAPL 1.96% or NVDA 1.98% might want to give this sector a second look, particularly with the breakout vs. SOXX that has happened over the past week.
This ratio chart of IGV/SOXX has just exceeded the downtrend line on this sub-sector pair going back since 2019. Thus, Software certainly has technical appeal as a sub-sector within Technology, despite some of the lagging behavior in stocks like MSFT -0.09% lately.
IGV/SOXX
Bounce in Crude Oil likely proves short-lived
The big news over this past weekend concerned OPEC+ delaying the return of Output reduction by one month and Crude bouncing also potentially on news of retaliation by Iran to attacks by Israel post the US Election.
As daily WTI Crude (front month) futures charts show, the decline in October was likely a clear five-wave decline. Thus, while a minor bounce is underway, it likely won’t prove too strong before another pullback down to new lows in December. Volatility has risen for Crude, but not unlike what’s being seen in many assets ahead of the Election.
Technicals for both Crude oil and Energy as a sector are negative heading into next year, and bounces should be seen as temporary before prices turn back lower. I continue to believe Energy should be a technical Underweight and is likely to lag most other groups between now and year-end.
Light Crude Oil Futures
Clean Energy starts to bounce following its test of last few years’ lows
Given that some political polls showed a minor tightening in the Trump/Harris spread over the weekend, this weekend seemed to kick off with strong gains out of many Alternative energy plays.
The Global Clean Energy Ishares ETF (ICLN 1.16% ) managed to close at new multi-day highs following its recent bottoming out near prior lows with Spring 2024 and late Fall 2023.
DeMark-based exhaustion was present on daily charts of ICLN, making this bounce something to take a bit more seriously.
While much work remains to be done before turning too constructive on this group, it’s possible technically to make the case for a bounce to $13.75-$14.
Global Clean Energy Ishares ETF * ICLN
