The short-term pullback this week for US Stocks looks complete, and should be beginning a bounce which likely carries into early next week ahead of the CPI report and FOMC meeting. While SPX likely gets marginally above 4000, I am not expecting an immediate breakout back over 4100 highs. The bottoming out attempt in US Treasury yields likely results in a snapback rally post FOMC next week which translate into Treasuries and Equities resuming their 2022 positive correlation. (After all, a few days of diverging doesn’t mean this is over) Overall, focus remains on Technology as much as Treasury yields in the short run. Given that SPX largely peaked out exactly where it should have, the burden of proof is on the Bulls to push prices back above 4100, which seems unlikely given that Treasury yields are right at support. Overall, it’s not wrong to await confirmation either way before getting too aggressive, but the base case revolves around minor bounces into FOMC failing and selling off into December expiration.
Gann’s Mass Pressure index remains on schedule
It’s worth pointing out that the Mass Pressure index direction, based on a compilation of several important cycles including the 60-year, looks to be peaking right now, and turns lower into December expiration.
This has been largely correct for most of 2022 in pinpointing highs and lows, and until proven otherwise, this period between December 8 into December 21 looks to be the final pullback for the year before the end of December push into 2022.
Given that SPX stalled near 4100 and Treasury yields look to be trying to stabilize and should push higher, I think the odds are that SPX should start to consolidate in broader fashion.
Near-term, bounces into Monday-Wednesday of next week should stall out near 4012-4035 before turning back lower. Any break of 3900, however, before this area is reached should be respected as being a technical negative.
See the shape of the Mass Pressure index below, showing a June and October bottom. The 60-year had lots of impact on 2022 as our October low much more closely resembled 1962 than it did this composite. However, even in 1962, Equities peaked out by 12/5 and consolidated.
WTI Crude has nearly erased all its 2022 gains; Now What?
Technically, Crude has moved back to new lows for 2022, stripping away nearly all its gains.
This is a technical negative, but yet bounces look near with WTI back to near oversold levels.
Rallies up to $76-$78 look likely, but that initially might prove sellable before a final pullback into mid-December.
Overall, Crude’s weakness has not had the damaging effect on the Energy sector as many believe it should have had. Yet this divergence doesn’t mean its right to sell Energy. I’m expecting that Crude downside should prove minimal and initially, a bounce up to the high $70’s is likely.
Energy has not broken down below key support, meaning this pullback is still buyable for this sector
Interestingly enough, while WTI Crude’s decline has finally resulted in some near-term weakness for Energy, this sector remains a leader over all other S&P GICS Level 1 groups on a 6, 9, and 12 month basis.
Healthcare has managed to surpass Energy ever so slightly on a 3-month, yet this hasn’t been meaningful enough weakness to avoid this group.
As this daily relative chart shows of Energy on an equal-weighted basis (Invesco’s $RYE shown, the Equal-weighted Energy ETF), Energy’s pullback has not violated intermediate-term trendline support vs the Equal-weighted S&P ETF by Invesco. ($RSP)
Overall, downside looks to be minimal and Energy stands out as an attractive risk/reward given that Crude oil looks to be close to bottoming. One should look to use any further downside in crude to overweight Energy into mid-December, expecting a rally into end of year.
Any early 2023 weakness likely should prove short-lived, and February stands out as a month to buy any larger weakness for a rally back into Late Spring for Energy.
