Incredibly enough, Thursday’s surge surpassed even what options markets were expecting for volatility post CPI. Equities, Treasuries and currencies all showed some of the largest movement seen in years. SPX’s move above late October highs puts a major decline on the back burner for the time being. While risk/reward is never ideal to initiate new longs into a +7% advance, huge breakouts like Thursday’s on above-average 8/1 positive breadth are rarely “the high” of any move. My scenarios which were discussed two days ago now warrant following this breakout, regardless if prices are overbought short-term. The real question of whether “the low” is in all has to do with whether Technology has truly bottomed along with Treasuries. I’m inclined to say no on both counts. Yet, it’s still necessary to obey the near-term trend when SPX has religiously followed the 60-year cycle for most of 2022. If this continues, it would put a minor peak in place near December 5 but largely pushes higher for the balance of this year. Despite this not agreeing with what many feel fundamentally makes sense, my thinking is 4000 is certainly possible and even 4100 which would align with the larger downtrend from January peaks.
SPX faces major resistance near 4100 into December
While I don’t sense that the next few weeks will trend higher uninterrupted given the severity of Thursday’s gains, it does cause the near-term counts to take on a bit more bullish structure.
It’s thought that this rally from our November 3rd lows likely will approximate the initial rally from October 13th lows in both price and time potentially. Normally it’s right to use Fibonacci to project where a rally can go after it’s surpassed a prior high.
In this case, no DeMark exhaustion is near on this rally. Furthermore, an “equal-legs” type move would carry prices up to near the 4100 mark.
As shown below, this is a very strong level of intermediate-term resistance. If reached into early December, one would consider that an area where SPX should stall out and backtrack into 2023.
For now, for those who are short-term oriented, it’s proper to stay bullish until/unless 3859 is broken, and below this lies the all-important 3700-SPX level.
It’s also important to reiterate that the last three months all showed peaks mid-month, October, September and August. Meanwhile both June and July bottomed mid-month. Thus, rallying into next week likely could present a short-term top again, leading to weakness into 11/22-11/23.
My take is that selloffs into that time should be buyable, and it will only be necessary to truly turn bearish again if 3700 is broken which might not occur until next year.
US 2-Year Yields are down near support
Interestingly enough, the 2-year yield dropped more than the 10-year did on Thursday, causing a steepening in the curve. Yields are down to short-term support, and it’s thought that 4.25% should be difficult to break in the near-term.
10-year yields should face support near 3.80-3.82% and try to turn higher. Thus, given the negative correlation with SPX, this might involve some backing and filling sooner than later, which is precisely what the bears would like to see.
My Elliott counts still point to a possibility of yields turning back up to highs.
Overall, it will be difficult to truly get too intermediate-term bullish on Equities extending more than 5% more into year-end until there is more evidence of yields truly breaking down.
At present, I’m expecting a minor bounce in yields and then expect yields could begin a larger breakdown. This would coincide with Equities also showing further strength.
Gann’s Mass Pressure index shows strength into year-end
This cycle composite which draws heavily from the 60-year cycle has been a very good fit for 2022 thus far. While it didn’t exactly show the same degree of weakness in October, 2022 actually followed 1962 even more closely which showed a far deeper correction before bottoming.
Overall, I feel Thursday’s rally likely puts this composite back on track for gains into December. While yields and US Dollar are down to support and could bounce, which might coincide with some backing and filling of Stock indices next week, I’ll simply consider dips as being an attractive entry point until/unless 3700 is violated, with first real support being 3859.
As shown below, the severe decline into June bounced sharply before pulling back again in October. While this composite shows weakness in the first half of November into November 15th before turning higher, I feel that the degree of strength coinciding with hugely positive breadth on Thursday cannot be considered a negative, particularly when former peaks were exceeded.
The NASDAQ, of course, is diverging from SPX and DJIA and has not yet broken out above October peaks. A rally above QQQ-284.60 would help to confirm a larger move higher is underway, along with the 2-year breaking its long-term uptrend.
At present, one should look to consider short-term pullbacks as bullish unless SPX–3859 is broken. That’s the first warning that markets are, yet again, shaking out the bulls and turning down. However, 3700 is the real “line in the sand”. Thus, a positive bias into December 5 makes sense, using any weakness next week as a buying opportunity ahead of Thanksgiving
