Equity trends remain bullish, but Monday’s stabilization is highly suggestive that the recent volatility very well could be complete, which might give way to a rally back to fractional new highs into late November. Despite recent deterioration in market breadth, bearish cycles and evidence of speculation that had cropped up in recent weeks, some of the sentiment positioning has pulled back from recent extremes. Given AAPL’s chart improvement lately, along with NVDA’s upcoming earnings, these could be two important catalysts for Technology in the weeks ahead. Overall, it’s still tough to rule out early December volatility, but the recent deterioration in Equity indices has proven constructive and still insufficient to suggest any larger stock market setback is yet upon us.
To recap the thinking from Friday, which seemed to suggest Equity indices might be close to bottoming:
- SPX is approaching 50% retracement area of its prior runup, while QQQ has hit trendline support.
- Elliott-wave theory shows this entire week’s correction to be a corrective pattern, not something that would lead to much further weakness.
- DeMark weekly exhaustion is not yet complete for SPX, requiring a pushback to new highs.
- NVDA’s chart is also quite bullish technically, and weekly exhaustion is also premature.
- AAPL chart improved this week after the decline into early November could have morphed into a much more negative pattern.
- The area near former October 2024 peaks is thought to be important structurally on a decline.
SPX’s stabilization on Monday likely means that lows to this recent selloff over the last week are close. Whether or not Tuesday briefly leads lower or not, I doubt that much additional downside is likely for SPX before it turns back up to fill the gap from last week near 5942. This is the first important area, and it’s thought that NVDA earnings this week very well could lead Technology to turn higher, creating an index bounce into the Thanksgiving holiday.
S&P 500 Index
Momentum remains a huge Outperformer over the last year
As seen below, when looking at ratios of Momentum vs. the next best Style performer, Momentum has trounced the next best performer by the largest margin since 2008. Past returns over the past 15 years have not always shown outperformance by Momentum, but at present, this remains much more favorable over other Styles in the last year, along with the last four years.
While it will be important to watch when this reverses (as 2008-2009 proved to show a dramatic reversal after prior Momentum outperformance), for now, this remains a very bullish driver of Equity returns, and until there is ample evidence of reversing course, it remains right to favor Momentum.
Momentum Ratios
Huge reduction in S&P long positioning looks quite constructive from a contrarian perspective
CFTC positioning (Commodity Futures Trading Commission’s Commitment of Traders Report) gives some interesting insight when looking at Futures positioning with a 2-year lookback window.
As seen below, there looks to have been a big shift in S&P positioning, with S&P longs dropping by 88k, the biggest weekly net sale of the year. From a contrarian viewpoint, big drops in positioning could be construed as bullish, as Speculative positioning rarely is adept at calling turning points accurately.
Futures Net Position Z-Scores
Energy can only diverge from WTI Crude for so long
While Energy has been one of the early November outperformers following the Election, I’m skeptical that the recent relative strength can continue, given the bearish pattern in WTI Crude oil.
Near-term, the relative chart of the Equal-weighted Energy ETF (RYE) vs. Equal-weighted S&P ETF (RSP -0.23% ) has bounced following its breakdown to multi-year lows. Over the next 2-3 weeks, this minor bounce in Energy does look to potentially carry a bit higher.
Charts of XLE -0.04% and XOP -0.19% have both achieved minor downtrend line breakouts, which could carry these higher into late November.
However, the chart of OIH 0.29% has not shown much participation in this rally technically speaking and remains a relative laggard.
Counter-trend DeMark-based exhaustion on XLE -0.04% ’s weekly chart could be complete within the next two weeks, making this a poor risk/reward to expect December outperformance, barring a sudden recovery in WTI Crude oil.
My resistance targets for XLE, OIH, and XOP are as follows:
XLE- $98.50-$99
XOP- $147.50
OIH- $307-$310
Upon reaching these targets, I expect to see weakness in Energy in December, mirroring a possible further decline in WTI Crude oil.
RSPG / RSP
Crude looks close to turning down to below $50 into next year
Despite the minor bounce in the US Energy sector following the Election, there has been little evidence of strength out of WTI Crude oil.
This still looks quite negative technically, and I expect a move down under $66 in the week(s) to come, which should result in Crude weakening down to the low $ 50s initially.
Based on daily charts of the front month WTI Crude futures chart, Crude carved out a five-wave decline in the month of October, last month.
This is a negative for Crude and the minor bounce should not get back over $70.50-$71 before reasserting its downtrend.
I expect that when this happens, it should be quite bearish for Energy, and Crude prices might fall to the low $50’s initially and then potentially below $50 into mid-2025. Such a decline should make Energy a Technical Underweight, suggesting it might still be too early to expect an end-of-year Mean reversion higher out of Energy.
Light Crude Oil Futures
