Last weekend’s article was titled “FOMO Prime,” and as you might guess, it received this week’s strikes within the S&P500 (SPY) fully unsuitable. I ought to have stayed bullish as a substitute of making an attempt to anticipate a correction. In my defence, I did state “closing under 4393 ought to sign the start of the reversal,” which by no means occurred and will have saved readers protected from shorting. However this hardly makes up for lacking the rally.
So, what went unsuitable? Did technical evaluation fail?
Completely not. Reasonably, my interpretation of the technicals failed. Whereas I pointed on the market was a bullish weekly shut and a bias for continuation, I “thought” any additional rally would fail because of the measurement of the transfer off the lows and my expectation for a pullback forward of any continuation. Nonetheless, there was no actual proof for this view.
This week’s article will attempt to depart any failings and bias behind and can have a look at new targets. Has the CPI miss and the top of ‘increased for longer’ modified the larger image view? Varied technical evaluation methods will likely be utilized to a number of timeframes in a top-down course of which additionally considers the main market drivers. The purpose is to supply an actionable information with directional bias, essential ranges, and expectations for future worth motion.
S&P 500 Month-to-month
The November bar has damaged the October excessive of 4393 and this held because the low of the week on Monday. This may stay a key stage into the November shut – an in depth above is bullish, whereas an in depth under is impartial. Solely an unlikely shut under 4201 (the November open) would shift the month-to-month chart bearish.
The September excessive of 4541 is the following resistance, with the important thing space of 4593-4607 simply above.
Preliminary assist is 4393. 4201 just isn’t actually a assist stage however is related as to whether the November bar is leaning bullish or bearish. 4325-35 should be related in some unspecified time in the future, however has been chopped by way of just a little an excessive amount of to be a robust stage.
The September bar accomplished a Demark upside exhaustion depend. This has had its impact and there will likely be an extended anticipate the following month-to-month sign. November will likely be bar 2 (of a doable 9) in a brand new draw back exhaustion depend.
S&P 500 Weekly
One other continuation bar fashioned this week. A robust shut close to the highs initiatives some comply with by way of above 4521 subsequent week, with the 4541 peak the logical vacation spot.
The rally from 4103 is clearly bullish however stays at decrease highs and might shift bearish simply as rapidly. Simply have a look at the February-March restoration final yr.
I will not attempt to predict a reversal, however a transfer increased which fades again right into a weak shut (under 4521) could be the primary stage of a potential prime. This may nonetheless must comply with by way of to the draw back in subsequent weeks.
Closing above 4521 would kind one more continuation bar projecting increased.
4541 is the following resistance, then 4593-4607.
There’s no weekly assist till the important thing stage at 4393, with 4344 an essential stage under that.
An upside Demark exhaustion depend will likely be on bar 4 (of a doable 9) subsequent week.
S&P 500 Day by day
Technical evaluation articles entice occasional condescending feedback about chart “voodoo.” But, the day by day chart under had nearly all of the essential ranges (together with the 4103 backside and the 4505 present resistance) marked on forward of time. Take a look at the day by day chart on the October 29th article.
What strikes me is how the gaps throughout this rally have omitted essential ranges such because the 200dma and channel resistance. I doubt it occurred by chance.
The present three session consolidation close to 4505 is forming a bull flag and needs to be establishing continuation increased subsequent week.
4541-51 is preliminary resistance on the pivot highs and hole from the 2nd August. Hole fill is 4576 which is getting near the main resistance on the 2023 highs.
Preliminary assist is the hole at 4459, then 4393 and 4344 in confluence with the 50dma.
An upside Demark exhaustion depend will likely be on bar 7 (or a doable 9) on Monday. A response is anticipated on bars 8 or 9 which suggests a pause/pullback might begin on Tuesday or Wednesday.
Drivers / Occasions Subsequent Week
Given the CPI miss and the adverse PPI, inflation is anticipated to return to the Fed’s 2% goal in Q2 subsequent yr. This offers lots flexibility to chop again to a extra impartial fee and even ease additional in response to financial weak point. Consequently, a tender touchdown is the consensus view and the ‘increased for longer’ narrative is just about lifeless.
This backdrop appears to justify the rally in shares and will make them immune from weak knowledge for some time. Any issues with the economic system may be solved with a couple of fast cuts, proper?
Mistaken. The proof exhibits fee cuts will not be traditionally bullish and normally come too late to assist the economic system. Certainly, on common since 1994, the S&P500 has a adverse efficiency within the yr following a lower (granted that is skewed by the heavy drops throughout latest recessions).
So, whereas the primary stream narrative could inform us unhealthy information is sweet and cuts will remedy every thing, this will not be the case.
Information is lighter subsequent week, however as traditional, I’ll watch Unemployment Claims intently (due on Wednesday because of the Thanksgiving vacation on Thursday). PMIs on Friday are additionally a number one indicator. US markets will shut at 1pm on Friday.
Possible Strikes Subsequent Week(s)
With final week’s errors in thoughts, the very first thing to say is the chart nonetheless seems bullish and there’s no signal of a reversal, but. Certainly, there’s a bias for a transfer increased subsequent week to 4541, fairly presumably 4562-76. Moreover, if there are sturdy closes close to these ranges, the trail needs to be increased nonetheless.
Day by day exhaustion ought to kick in round Tuesday/Wednesday so ought to any of those ranges result in a reversal decrease and weekly shut again under 4521 (i.e. inside this week’s vary), a prime could start to kind. The timing of this doable reversal would not fairly match with subsequent week’s shortened vacation week or the prospect of a ‘Santa’ rally, however we solely must look again so far as final yr to see weak point could be very doable round vacation season (a reversal on 1st December resulting in a 8% drop into the twenty second December low). Seasonality has labored properly this yr, however just isn’t the one consideration.
The rationale I’m even considering a prime and reversal pertains to the larger image view and the conclusion from my twenty ninth October article: “Even when the S&P500 have been to stage a multi-week rally by way of 4216 to as excessive because the 4400s, it could solely arrange one other leg decrease at a later date to a minimal of 4049.”
Sure, the restoration has been stronger than anticipated, and the backdrop rapidly seems bullish, however that’s true at most tops. A reversal at a decrease excessive and a weekly shut again under 4521 would give the bears a glimmer of hope.