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 the post-election breakout produced a multitude of breakouts of various triangle patterns on numerous stocks and indices, the lack of broad-based strength over the past month remains a bit troublesome. US Dollar and US Treasury yields both appear vulnerable to weakness in the weeks ahead, and SPX has reached an area of channel resistance, which should translate into a pullback starting next week. While some choppiness could happen in the short run, I still anticipate that the back half of November should produce consolidation given cycle composites, Elliott-wave theory, DeMark exhaustion signals, and near-term breadth deterioration. However, at this time, Equity indices remain resilient and haven’t yet begun to turn down. 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.
No real change from yesterday’s thinking. Near-term trends remain constructive, but both SPX and QQQ showed a bit more signs of some minor stalling out into Friday’s close that also coincided with XLK having found strong resistance near all-time highs.
I’ll repeat yesterday’s comments for emphasis in the paragraph and bullets section below: “While many investors feel that the market has passed the window of danger from this past fall, it 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 in 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:
-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 -0.39% and on a 240-minute intra-day basis for both SPY and QQQ.
As shown below, SPX now lies near the highs of its ongoing trend channel from this past Summer. Friday’s pullback from early highs coinciding with Technology finishing down on the day likely could bring about some minor backing and filling next week.
The key towards understanding whether this would represent the beginning of a larger pullback, or just some minor consolidation all has to do with the wave structure of the decline. Any minor three-wave decline likely could find support near the 38.2% or 50% retracement levels before pushing back to new highs.
However, a five-wave decline from the peak would be more representative of a pullback which could extend further in the weeks to come. At present, my sense is that a larger correction might not occur until SPX enters the time zone of the prior all-time high peak from three-years ago, which happened across many indices near 11/17/2021.
Near-term, meaning the next few days, I would anticipate that we’ll see some further evidence of minor weakness in Technology and some retracement of this past week’s big gains. The shape and structure of any pullback will then provide some guidance as to what lies ahead.
For those who are new to these comments, it’s important to reiterate that the intermediate-term trends and cycles for US Equities remain in good shape. My comments on Equity weakness relate merely to a 3-4 week correction, which then turns back higher in December.
S&P 500 Index
China’s Large-cap ETF has taken a troubling turn lower
Today’s downturn in Chinese Equity ETF (FXI -0.28% ) looks to be structurally starting to break down again, given the extent of the decline towards last week’s lows.
While the decline managed to temporarily hold above late October lows at 31.22, any decline under this level next week would serve to turn trends bearish over the next month, inviting possible weakness down to 29.46, or even 28.34, or 26.91.
While the extent of the 40% rise off the lows was impressive, my feeling is that consolidation could very well continue in the back half of November, which might mirror a possible consolidation in US Equities. Investors need to watch for evidence of this support holding or giving way in the next two weeks as, technically, it won’t take much for FXI to violate this support, which would give way to additional near-term weakness.
Overall, weakness into December should make FXI appealing technically to buy dips. However, from an Elliott-wave perspective, Friday’s decline was not promising for the weeks ahead.
iShares China Large-Cap ETF
Crude oil also looks to be turning back lower
One possible policy-related effect of a Trump presidency concerns the interest in rebuilding America’s Energy infrastructure and a concerted effort to do more drilling in the years to come.
WTI Crude oil’s downturn on Friday violated the minor uptrend of the recent bounce, signaling a possibility of Crude returning to new monthly lows.
I continue to see Energy as an underweight and expect that Crude could be vulnerable to a further decline down to under $50/barrel.
Technical structure, cycles, fragile demand out of China, and potential policy effects might come together to cause Crude’s decline to fall even more between now and early 2025.
Any break of $66 should result in Crude falling to the mid-$50’s initially and should result in more severe breakdowns from some of the main Energy ETF’s such as XLE, OIH and XOP.
At present, most of these have bounced given the stock market rally, but a pullback in Crude likely would adversely affect this performance into year-end.
Light Crude Oil Futures
Technology SPDR Select Sector Fund ETF (XLK) should stall out temporarily near all-time highs
Technology fell in trading on Friday and a close look at XLK shows that prices are right up against prior all-time highs from July.
Given that stocks like AAPL and MSFT have struggled in recent weeks to keep pace with Technology and the SPX and QQQ’s gains, and SOX remains well off it’s all-time highs, it makes sense that XLK could stall out here and retrace some of its recent gains before a breakout to new all-time highs occurs.
Overall, Technology has proven more neutral relative to SPX in recent months, not bullish despite the recent index strength. This will be a key sector to keep a close eye on in the weeks to come.
While Technology is intermediate-term attractive, I feel that the recent underperformance combined with XLK stalling near prior highs might bring about Tech weakness in the back half of November.
SPDR Select Sector Fund – Technology
