Markets remain stalled near resistance, but there is rotation towards technology as interest rates retreat.
Small-cap stocks have pulled back to retest their breakout level, which should precursor the year-end rally.
Congress made progress on key issues, such as the debt limit, the budget, and the Biden agenda. These can all be positives for the market.
The surge of new COVID-19 cases in Europe worries traders, even as US cases begin to plateau or rise slightly.
We identify super-trending technology stocks below to celebrate new highs in the QQQ
The market has stalled at key resistance, as we expected two weeks ago and reiterated last week. Is this the pause that refreshes? We review key charts to understand the current state of play.
The broader market squeezed out small gains, but technology stocks (QQQ) had an excellent week after strong earnings from key components such as Intuit and Nvidia. Nevertheless, small stocks continued to retrace towards their breakout levels, as illustrated in detail below.
Since last week, we have been expecting that our sensitive Bull/Bear net balance would slip from its lofty levels since the market had stalled out near recent highs. However, as the chart below shows, the net balance is barely positive, and if it holds above zero, it will fulfill my expectation that it would remain positive through Thanksgiving.
The chart below clearly shows what is happening in the market using leveraged and inverse ETFs. The strongest ETFs are on the upper right, and the weakest ETFs are in the lower left quadrant. Observe that the major S&P-500 leveraged ETFs (UPRO, SPXL) and major technology ETFs (SOXL, TQQQ, TECL) are all on the upper right, showing where the market is strongest. Their corresponding inverse ETFs are all in the lower-left corner of the chart (SPXU, TECS, SPXS, SOXS, SQQQ, etc.) The Dow 30 and Small-Cap ETFs have underperformed in the short-term but are barely positive in the longer term and are clustered in the lower-middle part of the chart, with their corresponding inverse ETFs just a mirror image across the center-line.
Technology stocks have rallied on strong earnings and declining interest rates. US Treasury 10-year yields backed off their recent highs amid COVID-19 concerns. The chart below shows the clear bands of resistance and support. A new higher trading range seems to be forming between 1.40%-1.70%, but we will need strong economic data to push past resistance at 1.80% or so.
Key Question: Market Stalls at Resistance
We begin in the cryptocurrency space with Ethereum since animal spirits are in this market. The ETHUSD chart below shows that prices have retreated to test the breakout point, and the retracement has touched a key 38.2% Fibonacci retracement level. Additional weakness could test the rebound highs in mid-September, retracing between 50%-62% of the move. However, traditional technical analysis suggests prior resistance should now become the new support level, and we should see a pickup in bullish activity in this broad price area.
This is essentially the same picture when looking at the UDOW ETF (a 3x daily leveraged ETF based on the Dow Jones 30 Industrials index). UDOW has retreated to test its breakout level, and there should be good support between, say, 77 (the mid-September rebound high) and 80.
Next, we look at the Russell 2000 Small-Cap stock ETF from Vanguard (VTWO). It looks just like the two earlier charts, retesting the breakout level. This is not unusual since VTWO had a very long consolidation, and skeptical bears often fade the initial breakout. Should there be more weakness, I have drawn a blue rectangle to pinpoint additional support below the green rectangle. Over the longer term, VTWO is setting up for a bullish move that should easily rise above 90.
We are now entering a period of the year that shows strong seasonal trends. I have repeated a figure from that post below to show how the market behaves at year-end. We enter a holiday-shortened week on Monday, followed by a December packed with news about consumer buying patterns, tax-loss selling, and Congressional action. Expect more COVID-19 headlines as we enter the cold period when most people are indoors.
Finally, to celebrate the strength in technology stocks, we give a handy list of top trending tech stocks for your review.
MetaStock Event: YouTube link
I wish to thank all of you who attended my MetaStock seminar. If you missed it, my talk is at the beginning of the following YouTube video.
I wish you all a very pleasant Thanksgiving holiday. I will be off next week.
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Thank you for spending some time with me.
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