Trends from the past week remain negative, yet the lack of a meaningful breakdown in the U.S. stock market offers some reasons for optimism. And, although cycles point sharply lower after the presidential election, there could be one final move higher for stocks in the next week.
Here are two main reasons for this, albeit muted, optimism:
First, we haven’t seen sufficient selling to warrant getting out of the risk assets just yet. Second, Elliott-wave patterns arguably aren’t all that bearish in the short run. There also remains a few sectors that are still doing quite well and hitting new highs.
The S&P 500 Index has been trading sideways to lower. This has come during a heavy news cycle regarding a stimulus bill and the upcoming election. This has caused a consolidation in prices in recent days with very little headway in either direction. Although we need to remain focused, it still seems right in the near-term to try to bet on one final push up into late October (which would be used for profit-taking). I’m open to any outcome at this point, given that the Cycles I’ve discussed do move sharply lower in November/December. Thus, we’ll simply have to wait for some pattern resolution to have more conviction.
In the meantime, the bigger movements in recent days have seen Dollar breakdowns while yields have gone further to the upside as the short-term Treasury selloff continues. Financials have directly benefited from this, but for now no serious breakouts in the group, and more of just recouping what had been lost recently.
Gold and Silver continue to languish, mired in consolidation, ahead of what should be a Dollar bounce next month.
Meanwhile the Cryptocurrency end of year surge certainly seems to be back, mimicking several Q4’s over the last 10 years, many of which produce very strong rallies.
For now, the big developments aren’t really taking place in Equities, which have floundered a bit but not really sold off sharply as the large-cap Tech boom slowly comes back to earth. Rather we’ve seen Emerging market outperformance, Value trump Growth, and the return of some Defensive trading in the form of Utilities and Healthcare outperformance which i think continues. This next 2 weeks into the election should provide a lot more clues that will give us all conviction about the month ahead.
Five key themes worth highlighting:
1) Technology has snapped back but challenging all-time highs in RYT which might hold near-term. Above allows for a final push in Tech into late Oct before peaking
2) Treasury yields might prove muted in the next 4-6 weeks, but look to be trying to bottom out and might extend rallies after October
3) US Dollar rally should be forthcoming and important to watch for evidence that this causes breakdowns in the EM space v Developed markets
4) Breadth has rebounded to test all-time highs in Advance/Decline for August
5) Cyclical peak happened in early Sept and then mid-Oct briefly but the next key time hits near late October which should be more important for a peak and selloff into December
Chart Spotlight: S&P 500 Index
The S&P 500 price structure has proven difficult for bulls and bears alike these last few days.  The S&P 500 has stabilized, but has not yet made its move higher, nor has it broken down. The entire weekly trading range has been sideways as part of this downtrend, with the last 7 trading days (Thursday excluded) having closed down from the day’s open, but yet our “pullback” has proven very miniscule in actually having erased any more than 1/3 of the rally up from September. It’s thought that a move back over Tuesday’s highs would drive a last ditch rally towards Oct 12 peaks which might exceed by a small amount, yet given the momentum and breadth slowdown, would be something to sell into if this happens into next week (On stimulus agreement, or otherwise).
Thus, the key areas remain near 3410 for the S&P 500 while a push higher to break the current minor downtrend would be something to use to take profits and watch carefully for any evidence of Tech slumping further.
Twitter: @MarkNewtonCMT
Author has positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
