Near-term US Equity trends are bullish, and despite the recent churning, I don’t think much can be made of the stalling out technically. My thinking is that AMZN, GOOGL, TSLA, NVDA, and AAPL have combined to offer some great leadership despite the stalling out in most of the market in recent weeks. While the bifurcation between large-cap Technology/Discretionary and the broader market is growing more severe, I don’t see this as an issue, just provided Technology can continue pushing higher. However, overall, I expect that US stock indices have entered a much choppier trading environment between now and the end of November. Over the next few days, it’s tough to make the immediate case for SPX to push to new highs. However, dips should provide buying opportunities, and it looks doubtful that SPX undercuts 6750 right away before a push up to 6950-7000 into mid-November.
In the short run, the recent churning since last week doesn’t offer much reason for short-term confidence just yet for ^SPX or QQQ 2.65% , as price action remains choppy while market breadth has proven disappointing lately. However, none of the recent technical warning signs with regard to market breadth have really led to much weakness, and it still looks likely that Technology pushes higher into mid-November before some consolidation gets underway.
One can’t rule out a bit more weakness this week, and near-term support lies at 6814, which might not hold if tested, and lead down temporarily to 6784, or a maximum area of support near 6750. Resistance lies at 6882, then 6950-7000, which should prove to be very strong.
For now, the strength of many of the Tech and Discretionary leaders has helped Equity indices to hold up despite the waning breadth, but it’s thought that sectors like Financials and Discretionary will eventually need to start to strengthen to help US stock indices avoid a November drawdown. While a minor period of ^SPX weakness might still happen this week, I’m doubtful just yet ^SPX would violate 6750.
Any minor “backing and filling” to fill the gaps from recent weeks should translate into attractive buying opportunities for now. Keeping a close eye on NVDA 2.29% , AAPL 1.68% , and GOOGL 6.36% makes sense given their weightings within the market, but these all still look quite positive technically.
S&P 500 Index
Russell 3000 shows over 6% of all its constituents at yearly lows
The steady weakening in market breadth is particularly evident in many sectors outside of Technology and when eyeing Russell 3000 (R3k) we see that over 6% of all its companies’ stocks are now at 12-month lows.
That’s interesting and surprising for a market that feels quite resilient, but it’s important to pay close attention to this in the weeks and months to come.
At present, if some of the recent laggard sectors can begin to snap back and strengthen between now and year-end, it would help to defuse some of the concern that a development like this often brings about.
As seen below, the percentage of “R3K” hitting new 12-month lows has hit the highest level since the spring. This won’t be an issue for markets provided that Technology’s ascent can continue steadily higher. I’m skeptical that this will be the case throughout November, so some sector leadership outside of Technology is thought to be key for the weeks ahead.
Russell 3000 Breadth – Percent at 12 Month Lows
Equal-weighted Financials seem to be quite close to bottoming
One of the most important areas of the market outside of Technology, based on its weighting, is Financials.
We mentioned last week that moving higher in a broad-based fashion for US Equity indices might prove difficult if Financials were underperforming sharply.
That could be changing. Both Equal-weighted Financials ETF (RYF 0.25% ) and XLF 0.43% show weakness to be at/near support and should begin to stabilize and turn back higher within a week.
This looks important and is one of the reasons why a broad-based rally still looks like a real possibility from mid-November into the end of the year.
RSPF/RSP
Consumer Discretionary also seems to be at a key area of support
Despite the poor performance out of Consumer Discretionary lately, RCD -0.32% (Equal-weighted Consumer Discretionary is the second worst performing sector over the last month, and down by more than 5%), it’s now down to an area of support, not unlike Financials.
The relative chart of “Discretionary” hitting trendline support, which has held for more than 12 months, seems important technically.
Some of the casinos, like WYNN 3.04% and LVS 1.85% , were up 4-5% today, and Homebuilders look very close to bottoming.
Thus, while this sector has incurred some near-term technical damage on its decline (enough for me to lower this sector to Neutral), I suspect that it can stabilize and attempt to bounce in the weeks to come.
Bottom line, the act of Financials and Discretionary both stabilizing and turning higher after a dismal performance recently would be a welcome sign to a market that has been a bit “top-heavy” lately.
RSPD/RSP
