Markets remain in a tricky spot heading into Thanksgiving week, and today’s bounce failed to show sufficient improvement to think a low of any magnitude is yet in place. However, despite technical trends having turned negative this past week, I’m not betting on this decline extending too much longer before a reversal, and that could very likely happen next week, right ahead of Thanksgiving. SPX has now largely weakened enough to satisfy the 3-5% consolidation that was thought possible for November, yet some trend improvement will be necessary before trying to call a low. Improvement in both market breadth and momentum will be necessary in the final six weeks of the year to start to regain confidence in risk assets, and a ratcheting up in percentage likelihood for a December FOMC rate cut should help Equity markets start to show some stabilisation. Overall, as the title of today’s report says, it’s right to play defence for those with a short-term bias until SPX can regain Thursday’s (11/20) highs near 6670.
As discussed yesterday, Elliott-wave theory, Cycles and DeMark all seem to converge on late November as providing support and a rally. Friday’s snap-back rally happened on above-average bullish market breadth, but as shown below, it failed to demonstrate enough structural improvement to call for a low of any magnitude.
Overall, the next 2-3 trading days certainly have the potential to show more volatility. However, I am betting on a low in Technology by Wednesday of next week, which should help the broader market bounce into December. My thinking at this point is that ^SPX likely could face maximum weakness down to 6395-6450 and then bottom out and rally into December.
As shown below, today’s rally recovered around 50% of the prior high-to-low range from this past Thursday before stalling and retreating ever so slightly into the close.
Trends are bearish until Thursday’s peaks at 6770 can be surpassed. Key levels heading into Monday lie at 6660 on the upside, while any pullback to test 6521 likely would not hold early next week.
Breaks of 6521 could lead to 6418, a level which has some importance based on the most recent trend down from 11/12 highs. For QQQ 0.88% , any break of 580 would put the price into a very attractive area of support from a risk/reward perspective, with an ideal area for a low near 567-570.
While this might sound extreme, it would generate counter-trend exhaustion and likely coincide with a big bounce into December. For now, the key message is that it remains difficult to get too optimistic based on today’s bounce.
S&P 500 Index
RSP regained its October lows, which is a step in the right direction
Friday’s breadth surge helped 10 of 11 sectors rise more than 1% in Equal-weighted terms, while four sectors rose more than 2%: Industrials, Healthcare, Materials, and Discretionary.
All of these latter four outperformed Technology, and the Equal-weighted S&P 500 ETF by Invesco (RSP 1.97% ) successfully recaptured October lows.
While this doesn’t point to an immediate likelihood of a move back to new highs of this range to break out higher, it is a positive to have “stopped the bleeding” so to speak as many sectors moved sharply higher on Friday.
Overall, this market remains choppy, and we’ll need to see the breakout above the highs of this consolidation to bring about the broad-based rally, which can help restore some confidence in this Equity market following a difficult month.
Friday’s move was a minor step in the right direction in this regard.
Invesco S&P 500 Equal Weight ETF
Insurance outperformance looks to continue into late November
One area which has directly benefited lately, given some of the Equity volatility, has been Insurance stocks, which have relatively outperformed XLF during this recent period of market turmoil.
Looking back, we see that this group also outperformed this past Spring as Stocks fell from January into April.
This current relative rise looks to be ongoing and has not yet gotten to areas where this would reverse course.
While I don’t necessarily think that has to mean that stock indices will continue to be under pressure until late November, it does look likely that Insurance can continue to outperform the XLF 1.19% (S&P Sector SPDR Financials ETF).
Stocks like ALL 1.22% , CB 0.66% , BRK-B/B have all outperformed steadily in the last month, and Insurance still looks like a Defensive area which can be overweighted during this volatile time.
KIE/XLF
Homebuilders deserve some focus following weakness down to just above important support
One of today’s strongest sub-sectors was the Homebuilders, with stocks like BLDR 7.14% DHI 6.84% LEN 5.94% all trading higher by more than 5% in Friday’s session.
As shown below, this S&P Homebuilders ETF XHB 4.68% has maintained an attractive long-term uptrend from 2020 lows, yet has declined nearly 18% in the last two months from early September.
Today’s lift in many of these stocks in this sector looks appealing as the Homebuilding group remains in a seasonally strong period for outperformance. Moreover, a near 18% decline within a long-term uptrend at a time when FOMC is in a rate-cutting cycle makes XHB 4.68% seem attractive to own for rallies into 2026.
A close over $106 would serve to break out of the downtrend from early September, which should provide some technical confirmation that this rally is underway. Given today’s big rally in this sub-sector, I feel this might lie right around the corner.
S&P Homebuilders SPDR – XHB
