Friday’s gains helped this past week turn out the best performance since at least mid-July for the SPX and DJIA and many remain perplexed as to how the market can rally despite a lack of good news. As I’ve discussed, it pays to watch Treasury yields carefully these days, as reversals on Friday in the 2-Year Yield (Lower by 2.5%) directly coincided with risk assets turning higher along with the US Dollar pulling back. Interestingly enough, outperformance in Technology happened this week despite rates pushing higher. Overall, sectors like Energy, Technology, Industrials and Materials have been outperforming lately, and the near-term prospects for $SPX to rise to 3800-25 still look likely into next week. While the period in late October might coincide with some downside volatility, I expect that the improved breadth and momentum of late combined with ongoing pessimistic sentiment should result in attractive buying opportunities on any pullbacks in the weeks ahead. Trends should be bullish from November into mid-December.
Price/time angles show why $SPX has some serious work to do
This daily Optuma chart shows price/time angles drawn from January peaks, similar to what W.D. Gann used to advise investors to consider. Interestingly enough, the two prior peaks from this Spring and Summer arrived at nearly exact 3×1 angles (3 units of price per unit of time). These mechanical angles are often much better areas of support and resistance than traditional static angles drawn as trendlines across arithmetic or logarithmic charts.
As shown below, when projecting angles off the June lows, the initial advance stopped right at the 2×1 line. Furthermore, the ability to exceed that area would point to a rally up to test the all-important 3/1 angle yet again. Overall, this shows another reason why 4200 stands out to be truly important if/when it’s touched. This represents the first meaningful intermediate-term downtrend line resistance and represents a 50% retracement of the January-June decline.
While some might have expected $SPX was breaking down last week, the 2×1 line from the March 2020 lows intersected right where $SPX bottomed, making this area also quite important, and showing why it worked, despite not being around a traditional moving average like some might use.
Overall, one should get in the habit of utilizing price/time angles for projecting support and resistance, as I find them to be extremely helpful.
Treasury yields peaked out early Friday, directly coinciding with the Equity rally
Technically, the reversal in US 10-Year yields wasn’t as strong as was seen in the 2-year, but directly coincided with US stocks rallying and the US Dollar weakening. While it was difficult to make too much of this reversal on daily charts, hourly charts show a fairly pronounced mid-day reversal that looked important.
Overall, the ability of $TNX to decline back below the area of its most recent breakout will be key to jumpstarting a larger decline in yields, and this lies right near the key 4% level. Initially, I suspect that minor pullbacks likely still face strong support near 4.10 on any retreat.
$ARKK looks very close to bottoming
Interestingly enough, the Ark Innovation ETF ($ARKK) is finally starting to look appealing on a counter-trend basis following its recent retest of prior lows.
Reasons to consider this attractive now center on the following reasons:
- Positive divergence is now present in momentum on weekly charts with recent pullbacks to fractional new lows for the year failing to drag momentum down to similar levels.
- Prices managed to climb back above May lows that had been breached by a small amount in late September.
- Exhaustion signals are now in place on weekly charts. Weekly Symbolik charts show counter-trend exhaustion per DeMark’s TD Sequential and TD Combo indicators along with a completed TD Buy setup as of last week. Any weekly close back over $37.74 in the next few weeks would confirm these signals, driving a likely rally back to the low $40’s initially.
- US Treasury yields look to be on the verge of rolling over. The backup in rates directly coincided with above-average weakness in $ARKK, and it’s thought that a rolling over in rates would now be beneficial for growth and many of the $ARKK constituents.
Overall, I’m expecting a rally back to the low to mid-$40’s into mid-December. In order to expect a more meaningful advance, Summer peaks will need to be exceeded, which lie at $53.86. This will take some time, and initially, I’m expecting a sharp bounce, and I’ll discuss upside targets as the rally gets underway.
