Near-term trends are bullish for SPX, and the extent to which both Industrials and Consumer Discretionary have begun to turn higher to join Financials looks to be a short-term positive for Equity indices. Tuesday’s minor “back-and-fill” down to fill the recent gap in SPY wasn’t damaging technically, and the snapback rally, which began following Fed Chair Powell’s comments, coincided with some breadth expansion. As discussed yesterday, it would be helpful to see SPX push back to new highs, which would help DeMark indicators line up with Elliott-wave projections, along with cycles, for a possible trading peak to this rally. Time-wise, I had mentioned mid-October in recent weeks as possibly having importance. However, increasingly the combination of time-based indicators seems to project to late October. Overall, Treasuries, Equities, and Cryptocurrencies still have a good likelihood of pushing higher into late October, and until trends turn down, I’m skeptical that “Tariff talk” will do much to derail this rally, for now.
No change from yesterday’s thinking. In the short run, the rebound favors market bulls, and I suspect that a rally back to new highs is probable. While I don’t feel that the “Tit-for-Tat” escalation of words lately should be all that harmful to Equities, I am not expecting that Equities run straight higher into Year-end without some kind of disruption.
Overall, today’s Financials earnings proved to be beneficial for the group, as GS 0.29% , WFC -0.21% , JPM 0.79% , and C 0.58% all beat earnings, but warnings from executives seem to have dampened the mood. However, the combination of renewed dealmaking along with a resilient consumer seems helpful for the group.
Bottom line with regards to ^SPX’s possible trajectory, the near-term pattern still needs some technical help to get back over 6700. While the uptrend from this past Spring and Summer remains very much intact for SPX, the one-month trend was violated, as shown below.
Near-term, ^SPX will need to push back over 6700, which I feel is likely in the days ahead. The minor volatility, which coincided with worsening near-term trade relations, has proven to be not too damaging to the larger trend, but merely to the short-term trend.
I don’t suspect that 6555 will be broken in ^SPX over the next couple of weeks, but that Tuesday’s rally in Industrials, Consumer Discretionary, and Financials might all come to the aid of Technology at a time where it’s gotten quite overbought.
The hourly chart below highlights the area that needs to be recouped in the days ahead.
S&P 500 Index
Consumer Discretionary’s bounce looks to be getting underway
While last week’s technical discussion centered on the recent deterioration in sectors like Consumer Discretionary (“Discretionary”), it’s important to note that this sector looks to have reached important technical support when seen in relative terms vs. SPX.
Performance-wise, some of the Homebuilders and Casino stocks which had been hard hit over the last week, such as LVS 2.06% , WYNN 3.15% , PHM -0.15% , and DHI -0.22% , were all up more than +2.50% today.
While these have some work to do in order to erase some of the negative momentum caused by the deterioration in the last month, I find “Discretionary” to be positive for a bounce into the end of the month.
The chart below represents a daily ratio chart of RCD 1.05% vs. RSP 0.59% (Invesco’s Equal-weighted Consumer Discretionary ETF vs. Invesco’s Equal-weighted S&P 500 ETF).
I expect a bounce following the pullback to intermediate-term trendline support in relative terms.
RSPD/RSP
Industrials also seem primed to bounce following recent underperformance
Some of the relative charts between Industrials and SPY 0.35% also highlight the same type of possible bottoming out as has been seen in Discretionary this week.
As shown below, in ratio form, the SPDR Select Industrials ETF (XLI 0.39% ) looks to have broken out vs. SPY today, exceeding a multi-month downtrend.
Names that make up some of the largest weightings within XLI 0.39% , such as GE 0.32% , UBER -2.35% , and RTX -0.92% , still look quite attractive. The latter two of the three I mentioned have pulled back to minor support and likely can rally in the weeks ahead.
When scanning the worst performing XLI 0.39% constituents in the last three months, stocks like CARR -1.22% , VRSK -2.59% , LII -0.44% , CTAS 1.08% , and DOV 0.79% (all down more than 12% in the prior three months) all look to have arrived at support and have begun to stabilize and turn higher.
The weakest stocks of the last few months, however, are more difficult to “buy and hold” given the extent of their deterioration since July. In this case, I expect these stocks to likely rally for 2-3 weeks before stalling out.
Some of my favorite technical stocks within the XLI at present are GE 0.32% , PWR 3.37% , and GEV 0.83% , which I feel are quite compelling on a 3-4 month basis.
XLI/SPY
SPY vs. FEZ shows a Neutral trend (in US Dollars), and FEZ has shown some near-term strength vs. SPY
As might be expected for those who have witnessed the broader US equity market slow down a bit since July (when either stripping out Technology or eyeing the Equal-weighted S&P 500), the ratio between SPY 0.35% and FEZ 0.86% has largely been sideways in recent months following a strong rally in this relative chart from April into July.
Some of this sideways churning can be blamed on charts like NVDA -1.20% , AMZN -0.01% , META 1.66% , NFLX 0.01% , which have served to weigh down the performance of the Technology and Communications-heavy ^SPX.
In the short run, FEZ 0.86% actually looks to possibly outperform SPY in the days to come and will be something to monitor in the weeks ahead. However, the larger trend since July has simply been Neutral, not bullish nor bearish.
The chart below highlights SPY 0.35% vs. FEZ 0.86% (Euro-STOXX 50 ETF SPDR).
SPY/FEZ
