Near-term US Equity trends are bullish, and SPX and QQQ seem to have made an impressive bottom near the lows of their respective trend channels, which gives some credibility to the idea that a near-term trading low is either here or very close. Sectors like Healthcare and Energy still look attractive heading into next week, and generally, the Equal-weighted SPX fared a bit better than SPX this past week. However, Technology seems to be bottoming (also) where it needs to, and Friday’s rebound helped many leading Tech stocks like NVDA, MSFT, META, AMZN all form “Hammer patterns” which typically are present as reversal patterns following a steep selloff. The ability to break downtrends of this week’s selloff would suggest a push back to new highs should happen right away into mid-November, but it’s important to see Technology start to stabilize following the notable weakness in many Magnificent 7 names this week. Furthermore, the trend for both US Dollar and Bond yields looks to be higher over the next 1-2 weeks, and it is also important to see how this relationship vs. Equities does, given yields starting to push back higher. Overall, I expect that US stock indices have entered a much choppier trading environment between now and the end of November.
The key takeaway at the end of this week is that Equity markets certainly aren’t immune from weakness following six straight months of higher prices. Most of the late October breadth weakness proved to be an early and effective warning sign about the possibility of some downside volatility, even in the traditionally bullish month of November.
While it’s difficult to pin weakness on the Government Shutdown, it’s reasonable to think that Equity markets can rally once this does happen, along with “Quantitative Tightening” being put to rest.
The key going forward lies in Friday’s bounce continuing higher into Monday’s session and getting above key near-term resistance. There appeared to be some evidence that negotiations finally began to take place on the government shutdown as the week came to a close.
Both SPX and QQQ fell to Ichimoku support on Friday, and managed to both rise back up above the first key area of resistance (Near the area of former support that was violated on Friday). This is an initial positive and should drive QQQ up to near 615 to test
Despite four of the last six days being lower on QQQ, the intermediate-term trend remains positive, and I am skeptical that October lows will be breached.
As shown below, the next test might come about Monday, near 615, on November 4th, intra-day lows. Above that, a push up above 620 would help to surpass the minor downtrend of the decline from 10/29, giving more proof that a push back to new highs can happen sooner than later.
Overall, while the bounce on Friday was a technical positive, momentum remains negatively sloped, and QQQ has not gotten up above the prior days’ highs, nor broken this downtrend yet. Both of these are necessary steps before taking a “victory lap” on this decline, having run its course.
Invesco QQQ Trust Series
Equal-weighted S&P outperformed SPX this week. However, this doesn’t look to last
It looks premature to expect that RSP (Invesco’s Equal-weighted S&P 500 ETF) will start to outperform ^SPX.
While sectors like Energy and Healthcare have both been strengthening at a time when Technology has weakened, many prominent Technology stocks formed Reversal patterns on Friday, which could be important and positive heading into next week.
As shown below, while RSP outperformed SPY this past week, the lengthy downtrend line in relative terms remains intact. Furthermore, TD Sequential “13 Countdown” exhaustion signals have not been formed, nor confirmed.
Overall, my expectation is that Technology can rise back to new highs, and this would satisfy the weekly pattern’s signal towards suggesting that Technology might finally be due to show some consolidation. The key takeaway from the chart below is that buying Technology still makes sense.
RSP/SPY
Treasury yields look to still push higher in November, and next week’s huge coupon supply could be the catalyst
The recent pullback in the US Treasury note index (^TNX) likely doesn’t have too far to go before another 5-wave advance similar to the one that happened in October gets underway into mid-to-late November.
There will be a huge amount of refunding supply starting next week, with $58 billion in 3’s on Monday, $42 billion in 10’s on Wednesday, and $25 billion in 30’s on Thursday. (The bond market is closed for Veterans’ Day.) Also $40 billion in US high-grade bonds are expected in addition to the Coupon supply. As seen here, the near-term trend improved for ^TNX on the breakout into early November, exceeding the downtrend from July. Moreover, the move happened in 5 waves, which means that even on a mild “backing and filling” which occurred yesterday and today, more upside is likely, and that likely starts next week.
Overall, while I’m optimistic that yields eventually turn back lower into year-end, it’s possible to see a push higher in ^TNX up to 4.26% from 4.00-4.05% starting next week, and the US Dollar also could experience some gains before both DXY and ^TNX turn lower.
US Government Bonds 10 YR Yield
OIH likely shows some upside follow-through into mid-to-late November before starting to weaken and underperform
The hourly Oil Services ETF by VanEck shows the bullish pattern on OIH following just a minor amount of consolidation following the push higher in late October.
This overlapping, choppy formation should be resolved by yet another move higher, which might last into late November before Energy starts to roll over in bigger fashion.
At present, my technicals suggest OIH likely could rise from $285 up to near $300-$310 in the short run. This would likely represent very strong resistance near a level that was hit back in January of this year.
WTI Crude oil still looks to strengthen over the next couple of weeks before a period of weakness back down to test and break spring lows.
For now, while I feel that many Energy stocks look to be in the final stages of their initial advance off October lows, there remains further upside in November.
Some of this is playing out as typical mean reversion, which happens as the year’s laggards start to bottom and turn back higher as the year nears its end. In the case of Energy, however, I still anticipate much weaker prices for WTI Crude and underperformance in December. Thus, one should utilize any strength in OIH to $300-$310 to consider this to be strong resistance, which likely limits further upside.
VanEck Oil Services ETF
Healthcare looks to have a final push up into mid-to-late November before hitting resistance
Similar to Energy, the Healthcare sector also looks to potentially be in the final stages of its runup from August lows.
In this case, XLV should rise to early 2025 peaks before likely finding strong resistance near $151 into mid-to-late November.
Thereafter, XLV should begin to show underperformance as Technology starts to strengthen sharply in December.
At present, the path of least resistance for one of this week’s leading sectors (Healthcare) is still higher over the next 1-2 weeks, and XLV should show a bit more strength.
Health Care Select Sector SPDR Fund
