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US Stock market needs Financials to stabilize before broad-based rally is possible in Q4

Near-term trends are bullish for SPX, and I anticipate a sharp rally to finish the month of October after an interesting period of sector rotation in recent weeks.   Despite the choppiness of late, there hasn’t been sufficient technical deterioration to suggest the trend might be turning lower. However, it’s fair to say that sentiment has turned rather jittery heading into the weekend, and volatility has increased across many asset classes. Signs of VIX spiking, and momentum unwinding in Quantum computing stocks and Cryptocurrencies this week represent a change and are important to take note of. Much of this volatility might be attributed to the Regional bank credit jitters, and it’s taken a toll on Financials late in the week. Meanwhile, both US Dollar and Treasury yields weakened this week, and the “Magnificent 7” have been churning in range-bound consolidation for more than a month.  Overall, the combination of time-based indicators and Elliott-wave structure seems to project higher to late October/early November before a possible peak, and there hasn’t been sufficient weakness in the trend of either SPX or QQQ to turn bearish. Bottom line, while some stabilization in the Financials sector looks important given its heavy percentage within SPX, I feel like short-term negativity combined with volatility that has failed to break trends should still lead US Equities higher.  

Until there’s evidence of October lows being broken, the path of least resistance remains higher, despite the short-term consolidation that’s been happening in the last few weeks. 

I don’t suspect that 6555 will be broken in $SPX over the next couple of weeks, and a coming push back to 6800 and potentially over this level looks possible between now and early November.

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