Bottom line, Equity markets are likely to stabilize and turn higher next week. $SPX fell below its 50% price retracement area of the June-August bounce, yet time factors show the beginning of September to be strong in providing some support to weakness. As discussed yesterday many prior low to high and high to low swings project to this time as being important, and technically markets should try to make a stand and rally into mid-September. While many have written this off and are planning an immediate assault on June lows, sentiment continues to worsen, while the beginning and middle of September are very strong time-based turning points. Overall, the most recent decline from 8/25 will approximate 1.382 (Fibonacci extension ratio) of the original leg of the selloff down at 3922. This area also lines up with Gann’s Square of Nine chart targets for an area where price and time should be equal (3920-5). Overall, I’m expecting a reprieve to this decline, and bounce over the next two weeks, which should likely occur by end of week.
$XLE has pulled back to make-or-break targets following Crude’s recent About-Face
Crude’s decline finally looks to be taking a toll on Energy, which wasn’t the case in recent weeks. I expect that Energy has little wiggle room in the short run, and likely underperforms in September as Crude pulls back to the low $80’s.
$XLE has pulled back to test a very important level represented by late July highs at $78.66. The act of undercutting this would cause $XLE to be vulnerable to further weakness over the next month. Similar levels for $OIH lie at 230, and this cannot be breached without expecting a possible deeper retracement to 210, then 196.
Any daily close under $77.48, the 8/27 lows, suggests a likely retest of $71 and potentially a larger decline to the high $60’s before any stability.
WTI Crude has little to no real support until $81, and it’s thought that if Energy continues its weakness along with the commodity then this group should likely underperform in September.
Overall, Crude and Energy remain attractive at this point on an intermediate-term basis, making this decline likely buyable once Crude reaches meaningful support near its intermediate-term uptrend. At present, Energy looks like it might weaken further as Crude declines, and it’s best to let this play out before looking to buy dips.
$XLK is starting to show evidence of bottoming vs $XLE
Interestingly enough, we’ve started to see some confluence of daily and weekly counter-trend signals from DeMark’s TD Sequential and TD Combo indicators on the relative ratio of $XLK vs $XLE.
Despite rates still pressing higher, I expect Technology to outperform Energy between now year-end.
Any late September grinding higher in rates should translate into minor weakness, but would help TD Sequential weekly 13 exhaustion counts to appear on $XLK vs $XLE in ratio form.
Thus, Tech looks favorable to overweight between now and year-end vs. Energy, (and as I’ve discussed, should outperform as a sector between October and year-end.
One should pay careful attention to uptrend lines being broken in $XLE, $XOP and $OIH as this would be an important and negative development for Energy as a sector.
While Crude oil should stabilize in the low 80’s, Energy seems to be finally paying attention to Crude’s weakening, and further relative weakness looks likely in Energy in September.
Symbolik Chart below of the relative relationship of $XLK to $XLE. This has just formed a TD Buy Setup above its TDST line. In plain English, the next couple weeks should see Technology outperform Energy. I expect this into mid-September.
Commodities should likely backtrack after a very good lift off the July lows
Energy and Precious metals both have shown some evidence of starting to roll over again after having bounced in the last few weeks.
Equal-weighted GSCI Commodity index broke out in mid-August relatively to the SPX as US Equities peaked, while commodities held firm. Yet, this doesn’t signal anything more than a bounce at this time.
While it might be right to consider being long commodities as the US Dollar begins to weaken, this looks premature at this time and rates are still pushing higher.
Crude oil along with most base and precious metals could weaken over the next month before turning back higher.
As has been mentioned, Copper stands out as being attractive to buy dips, and Natural Gas is preferred over Crude oil given technical relative strength and the ongoing European energy crisis.
Pullbacks to recent lows in this relative ratio of Commodities to $SPX would merit paying attention and looking to buy dips. At present, precious metals are not working during a seasonally bullish time and might weaken back to new monthly lows. Crude oil looks to do the same in the weeks to come. Meanwhile, the SPX is likely to bounce into mid-September after its recent weakness. Thus, commodities should underperform Equities into mid-September.