The minor weakness to kick off the final week of November doesn’t appear all that serious just yet, as there remains no proof of US Dollar, nor Treasury yields starting to turn sharply higher. While these have stabilized a bit in recent days, more proof is needed that these are both starting to rally back to new 2022 highs. Given that Materials, Industrials, Discretionary and Healthcare have all shown recent outperformance, these groups should continue to lead the charge while Technology could lag into 2023. Hourly SPX charts below highlight the area of importance for support which lies near 3900, just below current levels. If this area is violated, one can say with a bit more confidence that US Equities are starting to peak out. Until that time, dips likely remain buyable with targets into early December at 4100-4120 on the upside. As has been the case for much of 2022, keeping a close eye on yields and the US Dollar will be key for equities.
India looks attractive with SENSEX back at new all-time highs
While the declining US Dollar has helped some within the Emerging market space to strengthen, India looks particularly attractive given the recent rally back to new all-time highs for its BSE SENSEX index. Its NIFTY index also is very close to all-time highs, and should join SENSEX in the weeks ahead.
While SENSEX is a market-cap weighted index which is heavily dominated by just a few key stocks within the Banking sector and Oil and Gas, this move to new all-time highs keeps this in a very bullish position. Upside resistance for SENSEX should materialize near-term at $70k into 2023.
The most liquid ETF’s which give exposure to India revolve around the MSCI India ETF, or $INDA which remains lower by around 15% off all-time highs. The percentages of stocks like $RIL, $HDFC, and $ICICI are lower than what the SENSEX shows, yet INDA still looks attractive to push higher in the weeks/months to come.
To gain conviction of a meaningful lift in INDA, prices require a daily close back above $44.10. This would jumpstart a rally to the low $50’s. Until any minor pullbacks likely area buyable with support found at $42.50, then $41.95 on weakness.
China’s Large-Cap ETF (FXI) looks unattractive at current levels
While India has trended sharply higher in a manner that looks convincing of future gains, other countries rallies look to be nearing important resistance.
China looks important in this regard, and $FXI looks to be at high risk to continuing after nearly a 25% rally in the first part of November.
Given the heightened uncertainty regarding recent protests and no clarity on Xi Jinpeng’s potential response, this looks to be high risk at current levels.
Traditional technicals agree with this thesis, as the recent e25% bounce remains part of a large 22-month downtrend. Moreover, FXI lies under prior lows from Spring 2022, which would need to be recouped to have more conviction on an intermediate-term rally.
Overall, I expect FXI to stall out before this reclaims $27 with more serious resistance found near $30. It looks right technically to avoid FXI at current levels until this has had a chance to consolidate gains into next year along with understanding how XI Jinping plans to end his COVID-0 policy.
Downside targets for FXI lie at 21, then 18.
FXI daily cycle composite seems to turn down sharply in December into next February
Interestingly enough, when running a cycle composite based on historical highs and lows of the last decade, we see that FXI could be entering a volatile time into early 2023.
This composite utilizes trading day counts of 122 and 58 days, which also have harmonic relationships to the 399 day cycle.
While the sample size is low given these inputs, they have successfully caught the last few tops and also bottoms China’s Large-Cap ETF ($FXI) Note that prior February 2021 and early 2018 peaks were caught by this composite as well as suggesting that FXI might bottom into Spring 2020 and also in early 2022. While the extent of the decline into October proved to be not as pronounced as what this projection showed, the rally from October into December is clearly shown on this chart.
Overall, the current projection is for FXI to start to weaken in December and trend lower into February before bottoming. Thus, the negative daily cycle projection seems to mesh with the intermediate-term technical situation in suggesting that further upside might prove difficult before consolidation into 2023. (As a reminder the pink line is the amplitude of this cycle and does not suggest that prices have to rise as sharply as what this line shows below. These are to be utilized for timing turns only and not directional magnitude.)
