Near-term trends for US Equities and Treasuries seem to be at resistance, while the US Dollar index has begun to rally.  A majority of the major sectors are also now right near meaningful intermediate-term downtrends.  Until we can see proof of downtrends being convincingly broken across the board, I still view current levels as being a poor risk/reward for new investments without consolidation.   Weakness possible into 12/21

The immediate Treasury rally following Tuesday’s economic data resulted in Treasury yields pulling back to new three-month lows directly following a similar period of German Bund yield weakness after ECB’s dovish remarks by Schnabel.

This caused Equity indices to rally to finish the day nearly unchanged.  However, the degree that Technology camouflaged the intra-day bounce cannot be ignored.   Despite a +0.60% gain out of XLK 1.31% , the SPDR Sector Technology ETF, results out of the Equal-weighted Technology gauge were not nearly as robust.  Invesco’s Equal-weighted Technology ETF (RYT) fell -0.59% and tells a far different story.

Moreover, all 11 Equal-weighted ETF’s fell in trading on Tuesday, with four sectors dropping more than 1% on the day:  1) Energy 2) Materials 3) Discretionary and 4) Communication Services.  SPX’s 12/5/23 close of 4567.17 lies less than 0.50% from levels achieved two weeks ago, from Monday 11/20/23, directly preceding the Thanksgiving holiday.

As I’ll show in a chart further in this report, AAPL looks to have another 2-3 days of gains before reaching all-time highs.  This should specifically act to prevent Big-Cap Tech, along with QQQ to meaningfully weaken, and it still looks right to favor Large-Cap Technology, in my view.

Importantly, I feel strongly that any bounce attempt between Wednesday and Friday likely happens on mediocre market breadth.  The key period in December that looks potentially negative given recent trading history lies up with 12/11 into 12/22.

If/when SPX breaches 4537, this should result in weakness down to SPX-4350-4400.  However, I don’t expect more weakness than this at this time.  Such a move would create a favorable risk/reward for the SPX during the final week of the year.

Furthermore, I suspect that the Santa Claus Rally period should turn in positive based on my cycle composite, and that any weakness likely would be postponed until either late January or early February (I’ll discuss this in more detail as markets draw closer).

At present, there are sufficient reasons to expect consolidation over the next few weeks, which I’ve discussed in recent weeks.   However, the degree of strength out of Financials and Industrials are certainly positives for the US Stock market overall in recent weeks.   Increasingly, it’s becoming more clear that any selloff likely will prove short-lived and likely not erase more than 62% of the advance from late October before turning back higher to new highs into 2024.  I’ll discuss 2024 targets on 12/14/23.

AAPL’s minor breakout makes a test of all-time highs likely into end of week

The one chart below shows why it’s still likely premature to expect any sort of correction, and specifically involves the chart of AAPL -0.47% .

AAPL broke out Tuesday to the highest levels since August.  Tuesday’s move cleared highs of the mini-consolidation in November, and the act of finishing at the highs of the session likely can allow for further strength up to $198.

Overall, I don’t suspect that AAPL will exceed $205 on this current rally before it begins to consolidate gains.  However, this might be limited by resistance near $198.50, and I suspect this can be challenged in the days to come.

AAPL continues to show excellent intermediate-term technical structure.  Even in the event of some minor weakness kicking off from 12/12, I suspect this should prove short—lived and ultimately result in AAPL pushing back to new all-time highs in 2024. 

Its technical structure of the consolidation from July appears very choppy and overlapping.  Thus, there remains scant reasons to be too negative on AAPL.  This in turn is important given its size within SPX and QQQ and what might unfold in 2024.

Energy sector breaking to new multi-day lows likely can allow for a quick test of October lows

Energy remains in near-term consolidation, and its bounce from early November has proven disappointing in terms of scale, severity and technical structure.

However, from a wave structure perspective, any further weakness in Equal-weighted Energy ETF RYE (Invesco) would signal a likely bottom in this decline from October.

Overall, I don’t suspect that much weakness is left in the Energy sector, and this sector looks appealing as one to favor in 2024.  The entire consolidation and minor weakness from September doesn’t come across as too technically damaging when eyeing the sector in relative terms vs. SPX.

Furthermore, my weekly cycle composites turn sharply higher in early 2024 to mirror what the Daily cycle composites suggested recently.  Trends in WTI Crude and Energy as a sector should be bullish arguably until September 2024.

Bottom line, while seasonal weakness has been playing out in recent months, I don’t suspect that much more decline is likely in Energy and in WTI Crude.  Investors should expect that any test of October support should make Energy more attractive for intermediate-term investments in 2024.

Insurance looks like a more attractive risk/reward following its relative weakness vs. Financials since October

One interesting insight on the Insurance sector concerns the degree of underperformance since October.  This directly lined up with the time that Interest rates peaked out and turned lower.

Given that ^TNX -0.14%  now lies near support and should not break 4.00% right away, I suspect that Insurance can likely rally back into year-end in relative terms to the Equal-weighted Financials sector.

Relative charts below show the KIE 0.34%  (SPDR S&P Insurance ETF) vs. the RYF (Invesco Equal-weighted Financials sector)

As can be seen below, despite KIE having steadily shown strength on an absolute basis, it’s performance relative to the broader Financials space when seen on an Equal-weighted basis, has proven sub-par.

Given the lengthy multi-year uptrend in the relationship between Insurance and the Financials in ratio form, this recent weakness likely spells opportunity.  The fact that TNX looks ready to join the US Dollar in stabilizing and strengthening in the next few weeks could be a reason to overweight Insurance names.

Overall, I like KIE 0.34%  relative to KBE and KRE for a relative recovery in the weeks ahead.

Following some relative strength into year-end, I’m willing to consider underweighting the Insurance sector tactically given my 2024 thinking that Rates likely show further weakness into Summer 2024.  (More on this in my 2024 Annual Technical Outlook on 12/14/23.)