Trend still bullish, but nearing upside targets– Wednesday’s strong “whoosh” higher for Equities and Treasuries has lifted prices along with yields to levels that are near technical targets for a possible trend reversal next week. Breadth came in quite positive for risk assets to close the trading session following Powell’s comments and the surge helped Elliott counts along with DeMark exhaustion counts grow ever closer to areas that are important towards suggesting a possible pause to this seven-week bounce. My time target of 12/5-9 for a pause/stalling out looks to be growing increasingly near, and SPX is growing quite close to the 4120 target that I’ve discussed in recent weeks. $QQQ, shown below, has upside targets at 300, with a likely maximum target of 307. At present, while attempting to lower risk exposure into a bullish breadth rally into December might seem foolish, it will be imperative for Technology’s trend to strengthen more to have conviction of a larger bounce. At present, Elliott wave, DeMark indicators and cycles suggest a possible peak heading into next week.
Treasury yields should bottom into next week
Powell’s comments helped Treasuries extend the recent rally, or as seen below, helped yields dip even further to near key downside targets on this first wave lower.
Overall, I don’t think the shape of this pullback means that highs are in for Treasury yields structurally. Downside support for yields is likely to materialize at either one of two levels discussed below.
First key support for US 10-Year Treasury yields ($TNX) comes in at 3.57%, or just below current yield levels. Breaks of this would lead down to 3.43%, equating to near a 50% retracement of the entire rally in yields from August lows.
Overall, the next 3-5 days should give some indication of when yields are close to bottoming. At present, it looks right to consider taking profits on $TLT and switching to $TBT as December gets underway, particularly with 12/5-9 in mind for a possible bottoming in Treasury yields.
Movement below 3.43% in TNX is not expected in December, but would certainly be respected as a bullish factor for further gains in risk assets if this occurs.
The ideal pattern would allow for a bottoming in yields next week, followed by a mild 2-3 week bounce before further unwinding in Treasury yields lower into year-end. At present, Wednesday’s big pullback in yields likely means the next 3-5 trading days can still work lower.
Technology growing near key levels after sharp rally
Technically speaking, Wednesday’s surge in Technology was certainly much needed following recent underperformance. Stocks like $MSFT and $META staged important short-term breakouts, and these stocks both look to trend higher into next week. $AAPL, on the other hand, reversed its downtrend, but likely will find strong resistance on gains into next week.
Importantly, Invesco’s Equal-weighted Technology ETF, $RYT, is nearing important Ichimoku Cloud resistance on weekly charts, which suggests that a downtrend line breakout (which looks near) likely can’t be trusted to extend meaningfully.
Overall, $QQQ looks to move to either 300 or 307 but should encounter strong resistance next week. Furthermore, $RYT should stall out as close as $270, and should not exceed $280 given this view for the next few weeks.
Upon evidence of Treasury yields bottoming and turning back higher, it’s expected that Technology likely stalls out and turns back lower. More evidence of this should occur in the week ahead.
NYSE should reach resistance into early December
While NYSE Composite is something many don’t pay much attention to, the shape and trend of this index look far different than what’s being seen in many US market indices.
As discussed last year, NYSE, Value Line and Russell 3000 all gave early signs of the market flattening out ahead of the January 3rd 2022 peak discussed by many as being “the peak” in stocks for the start of 2022’s bear market. One can see below the signs of rolling over starting in the Spring of 2021 that gave way to sideways consolidation most of the year, which wasn’t as apparent when viewing SPX.
Lately, this sharp rally has drawn near to August peaks along with a lengthy trendline that had formerly undercut lows extending back since Spring 2021.
This looks to be an important area and bolsters the case for a possible stalling out given the rally back to retest an area of strong resistance.
Finally, it’s worth making the point that NYSE Advance/Decline has not nearly rallied to the same level as was seen back in August. This is a minor concern and speaks to the lack of recent breadth having been seen in NYSE Composite, potentially given prior Technology underperformance.
Overall, the combination of the lackluster Advance/Decline rally to high enough levels, along with prices nearing resistance, are combining to suggest that December might serve as a month where NYSE Composite stalls out. The next 1-2 weeks should answer this question.
