Equity trends remain bullish from early August but structurally are growing closer to upside targets that might produce a stalling out into next week. While Wednesday’s post-election surge produced a multitude of breakouts of various triangle patterns on numerous stocks and indices, the lack of broad-based strength was a bit troublesome. US Dollar and US Treasury yields both appear vulnerable to weakness in the weeks ahead, and SPX and QQQ also look close to levels where consolidation is overdue. I suspect that US Equities might show some degree of stalling out as we near the three-year anniversary of the prior all-time high made on 11/17/21 in NASDAQ, Value Line, Equal-weighted SPX, Russell 2k, DJ Transportation Avg, and most of Europe. However, at this time, there remains no concrete proof that this is happening, nor have markets shown any weakness. Bottom line, while trends are bullish, I think it’s wise not to get too complacent given the numerous factors that are suggesting a potential short-term pullback could get underway in mid-November.
Near-term trends remain constructive, but both SPX and QQQ are showing intra-day counter-trend exhaustion signals, which might produce some weakness in the back half of November.
While many investors feel that the market having passed the window of danger from this past Fall means that a direct line higher into year-end is possible. I disagree with that thesis, as SPX is up approximately 800 points since early August lows and trended higher August, September and October. This resilience defied the odds of normal poor Election year seasonality during this time but does not suggest that Equities are immune to any consolidation in the weeks to come.
My chief reasons for concern in the back half of November are for the following reasons:
-Lackluster market breadth, which has slowly but surely tailed off since the latter part of September.
-Elliott-wave projections show five-wave advances in an advanced stage since August on SPX, NASDAQ, and many prominent Technology names.
-Cycle composite for SPX turns down between now and the first week of December.
-Indices reaching a prominent time-based area of importance that coincided with the all-time highs for many US and Overseas Equity indices in mid-November 2021.
DeMark exhaustion signals on a daily basis for SPY and on a 240-minute intra-day basis for both SPY and QQQ.
None of these reasons represents definitive proof that a selloff is coming. However, these are warning signs that have happened previously near prior peaks. Moreover, my thinking is that it’s right not to be complacent during this time, given that SPX has advanced 800 points in a bit more than three months’ time. The media narrative has flipped a bit too quickly to suggest that the so-called “Trump trade” should signal that DXY, TNX, IWM, Cryptocurrencies, and Equity gauges overall could be likely to continue rising given potentially higher inflation on policy choices that haven’t yet occurred. Such a way of thinking following an extended run is normally not wise.
As said yesterday, consolidation of this entire three-month move would bring about a much more appealing risk/reward situation for buying dips into year-end, and I am still very much on board with the idea of an intermediate-term rally carrying higher in the first half of 2025. The next two weeks should prove pivotal, and despite many investors feeling the worst is behind them, I would implore most people to watch the market carefully and keep a close eye on sentiment, breadth, and the formation of any DeMark-based exhaustion.
As shown below, SPX now lies near the highs of its ongoing trend channel from this past Summer. SPX is up near 6000, which does not guarantee any kind of stalling out. Yet the risk/reward seems sub-par after this run-up, and it should be wise to keep a close eye on price over the next two weeks.
S&P 500 Index
Coppock breadth indicator peaked out in September
One measure I often employ after an extended run is to watch the Coppock curve indicator which is largely a weighted moving average of the sum of 14-month and 11-month “Rates of Change” for a stock index.
When viewed on daily charts, I find it helpful when stock indices press higher, but this Coppock curve starts to nosedive. Thus, the divergence of price to the curve normally can send a possible warning sign for a coming change of trend.
When overlaying a MACD signal (Moving Average Convergence Divergence) we see that it’s generally right to be bullish when the MACD on the Coppock curve is trending higher with no negative divergences.
In the past month we’ve seen the opposite. The Coppock curve itself broke down under an uptrend line spanning three months in length. Moreover, MACD has been showing negative divergence for the last few months.
S&P 500 Breadth – Coppock Breadth Indicator
SPX stocks hitting 1-month lows, rose to 20% into November
Another interesting phenomenon is the percentage of SPX names that moved to new 1-month lows despite markets generally trending up in recent months.
As shown below, this spiked to multi-month highs last week, rising above 20% before pulling back to “Just” 14% at present.
The last November Election market rally post-Trump’s 2016 election showed no such readings until February 2017.
My thinking is that while markets being back at new highs is a good thing technically (and it is) it’s troublesome that not all stocks are participating.
Rather than a 4/1 or 5/1 or higher market breadth reading on a breakout to new highs post-election, SPX showed a scant 3/2 breadth reading, which only marginally improved in today’s trading.
The Summation index (per McClellan) is sloped lower, and the Coppock curve indicator has trended down over the last month, while over 20% of SPX names were at 1-month lows heading into November.
While there has been some minor lift in short-term breadth in the last couple days, it pales compared to the degree that many commonly viewed breadth measures have been sinking.
Thus, while trends remain bullish, I’m less inclined to think a further rip through year-end will happen this year without consolidation in this rally. I’ll discuss when SPX and QQQ break their 5-day and 10-day moving averages, as this should prove to be an important signal, along with any break in the larger uptrends.
S&P 500 Breadth – Percent at 1 Month Lows
Axon Enterprise stock has seen non-GAAP earnings and sales increase in Q3.
After-market activity on AXON (Formerly TASER International) suggests a potentially very good day for this maker of the TASER stun guns and law enforcement, military, and self-defense solutions.
As of 5:30 pm EST, AXON has traded up to $522 from its closing price of $468.75 as of Thursday’s close (11/7/24).
This is a very bullish development in an already extended chart pattern heading into this month but suggests even further upside gains might be possible before this begins to consolidate.
Monthly AXON charts are shown below in logarithmic form, which helps to put this recent price action into perspective after its historic run.
Initially, the breakout in 2018 was constructive for this chart, as AXON managed to push above former all-time highs from 2004.
It subsequently made another minor breakout late last year back to new highs following about one-year of consolidation within the uptrend. That proved to also be bullish.
At current levels, if the overnight gap holds into Friday, this likely would constitute a third-wave gap for AXON that could help the stock extend up to $528, with an outside chance of $587, which would be very strong overhead resistance.
At present, the act of making a bullish gap normally is not the most opportune time to pare back on long positions technically. The key to Friday’s trading will be for AXON to close above where it opens the day. Furthermore, the act of closing up in the upper quartile of tomorrow’s trading would bode well for an immediate advance. Conversely, any failure to hold early gains by the close would suggest some possible immediate consolidation before this continues higher.
However in the larger scale of things, until/unless AXON violates its trend from 2021 and its larger trend from 2010-2012 lows, the intermediate-term trend will remain technically bullish.
Axon Enterprise
