$SPX index has shown some minor stalling out, but yet trends remain positive and it still appears likely that a push up to 3800-45 can happen into Friday and/or next Monday. SPX as of Tuesday’s 10/19 close remains up about 200 points in four days’ time from last Thursday’s lows, and we’ve seen some constructive participation not just from Energy, but from key groups like Financials, Industrials and in particular, Transportation stocks. Even Technology has managed to rebound with XLK outperforming SPX over the last five sessions regardless of rates pushing higher. Overall, seeing Treasury yields peak out will truly be important to helping any rally have longevity in November. At present, a push to 3800 area in the near-term might represent an area to lighten up for traders, but expect that the maximum window of any near-term volatility likely should be over by early November. Thus, buying dips still looks prudent, and expecting rallies in November into December still seems like the base case scenario. Bottom line, getting some relief from US Dollar and/or Yields rolling over should likely result in a much stronger rally. As of now, this remains a near-term bounce within a downtrend, so an upcoming catalyst looks important as to “why” markets can break out and extend gains.
Near-term Elliott wave structure suggests higher prices near-term
Elliott patterns (based on my own interpretation) seem to suggest higher prices are likely in the near-term.
Movement up to 3800 for SPX will be important and above that lies 3830-45 which represent two different alternate projections of the first rally up off last Thursday’s lows.
This area near 3800-45 does seem like a strong resistance area, and I expect a good likelihood of a stalling out and possible reversal if this is reached into Friday 10/21 or next Monday 10/24.
Internal market strength tells a story that SPX has not
Whether it be the 5% gains in Transport stocks, or the 11.5% gains in banks over the last week, not to mention a 3.5% lift in Capital goods, or a 3.5-5% rally in Tech Hardware and Software sub-industry groups, the internal market action currently looks a lot better than what markets feel like in the near-term.
Defensive sectors like REITS and Utilities continue to lag and Healthcare has shown its own signs of stalling a bit in recent days. Much of this rotation out of Defensive groups seems constructive for market bulls.
It’s important to see if this strength can persist into November, particularly as yields begin to backtrack. At present, quite a few “risk-on” type groups are acting quite well and seem to paint a more constructive picture than what SPX looks like on daily charts within its current downtrend.
WTI Crude cycle composite turns up sharply for November into December
Energy continues to act resiliently and we’ve now seen OIH’s breakout be followed by strength in $XLE and $XOP on Tuesday. These technical patterns are bullish and should lead to further gains in the weeks to come.
Interestingly enough, WTI Crude’s cycle composite looks quite positive, and should help Crude extend up into end of year. This is just a daily composite and will show some evidence of a peak likely by end of year in the short run.
At present the combination of bullish technical in Energy ETF’s and many stocks combined with the positive divergence in Energy holding up better than Crude both look positive for this Sector. Finally, cycle composites also showing strength make Energy a top pick for outperformance in my view in the weeks and the months to come.