Financials underperformance hurts an already "thin rally"

Near-term US Equity trends are bullish, but SPX looks to be stalling near the highs of its channel resistance, and breadth has begun to wane sharply this week as Financials, REITS, Consumer Staples, Materials, and Healthcare are all lower over the past week. Top SPX constituent NVDA, meanwhile, has broken out and is rallying back to overbought levels. Yet, both MSFT and META fell after-hours on Wednesday and might serve as a near-term drag on SPX heading into Thursday. A few of the short-term cycles seem to come together with DeMark indicators to suggest next week could be important heading into November. However, pullbacks in the weeks to come aren’t thought to be serious enough to break early October lows near 6550 and should be buying opportunities.  At present, Semiconductor Index (SOX) still looks to push higher into next week, and it remains difficult to fight the near-term momentum in Technology.

The key question as Big-Cap Tech earnings get underway is “When do all these divergences matter?”  The bifurcation in US Equity markets has been growing more pronounced since July (where Tech rises, but the broader market doesn’t), and unless corrected in the near future, could have the effect of driving a minor consolidation if/when the Tech sector starts to peak out. 

It’s not a technical positive when eight of 11 sectors are lower in the past month (only Healthcare, Technology, and Utilities are positive on a rolling one-month basis), and the percentage of Russell 3000 stocks that are above their 50-day moving average is just 47%.

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