The near-term picture still looks positive for US benchmark indices and while momentum has reached intra-day overbought levels, this doesn’t imply a selloff has to happen right away. Despite some minor intra-day weakness, S&P and NASDAQ still pushed up briefly above last Friday’s peaks during Monday’s session, and it still looks possible to gain further this week with targets up near SPX 4050-75 and larger targets up near 4120. While I do expect that recent gains will require some consolidation, this might hold off until late week ahead of a push higher post Thanksgiving into early December. Overall, last week’s surge keeps trends positive near-term.
Value line shows strong one-year resistance directly above
While quite a few indices have begun to show positive breakouts of intermediate-term downtrends, such as DJIA, and Dow Jones Transportation Avg., there hasn’t been any such breakout in SPX, NASDAQ, nor the Value Line Geometric Average.
This area at 580-600 is quite important resistance for Value Line and looks unable to be exceeded right away. Thus, further strength this week might very well find some resistance on gains vs. thinking a much stronger rally is getting underway just yet.
Once this green downtrend has been reached and some consolidation takes place into next week, further gains are very possible, however, into early December.
Biotech starting to show meaningful breakout when looking at IBB exceeding former highs.
Biotech looks to be strengthening materially in recent days, and is a key part of the reason why Healthcare likely shows strong 4q outperformance.
As shown below on daily Bloomberg chart, IBB has just exceeded the neckline of a bullish reverse Head and Shoulder pattern which began in January 2022. While this slipped into the close and didn’t officially close above $135, this is a very positive development for Biotech which had been slowly building a base for much of the year. Near-term, I expect IBB to push higher to 140.80, with an outsized chance of hitting $149 which would be strong overhead resistance.
Stocks like MRNA, AMGN, GILD, BIIB have shown quite a bit of near-term strength as some of the laggards have snapped back. The former leaders like VRTX, REGN remain quite strong technically speaking and should be able to participate given Monday’s breakout.
Relatively speaking, the ratio of IBB to PPH has recently broken out again (Ishares Biotechnology ETF) vs. (Vaneck Pharmaceutical ETF) along with IBB vs IHI and vs XHS. Thus, Biotech is the strongest sub-industry group right now within Healthcare, and I expect this should continue into December.
Energy still looks strong, but WTI Crude might require some near-term consolidation
Interestingly enough, despite the recent strength in Energy, WTI Crude’s nearly 3% decline on Monday makes it likely that this might require a bit more consolidation before this can start to turn meaningfully higher.
This kind of development has happened in the past where WTI Crude has consolidated, but Energy has remained an outperformer. I feel that a similar situation could be approaching.
Daily front-month futures charts of WTI Crude seem to suggest a decline down to the low $80’s again could be “in the cards” Thus, we’ll see whether Energy might be adversely affected. Technically speaking, I continue to advocate longs in Energy and feel like this should be able to avoid much technical damage before turning back up with Crude in the weeks to come.
However, the near-term direction in Crude oil is bearish and likely shows a bit further deterioration before turning back higher into December. Overall, It’s right to favor longs in XOP, OIH, XLE on an intermediate-term basis, along with those whose timeframes are 1-2 months.
