Important price support levels previously highlighted have held strong, including the 3200-3230 level on the S&P 500, 10,855 on the Nasdaq 100, and $145/the 200-day MA on the Russell 2000 (IWM). Additionally, both the S&P 500 and Nasdaq 100 are breaking out from their bullish falling wedge patterns that have been taking shape since the early-September highs. These bullish inflections are encouraging and, combined with market dynamics which remain mostly healthy, lead us to believe the lows of this recent correction are likely in.
Support levels highlighted above on the S&P 500, Nasdaq 100, and Russell 2000 (IWM) remain paramount; arrows are pointing up as long as they hold. On the other hand, breakdowns would tell us the market is still in a corrective phase and would need to explore lower prices. Resistance levels to watch include 3425 on the S&P 500 and 11,500 on the Nasdaq 100; breakouts above these levels would only strengthen our already constructive outlook… see charts below.
Sector Relative Strength Rankings & Weighting Recommendations.
Cap-weighted Technology (XLK) and Communications (XLC) are making bullish short-term price and RS inflections, a bullish sign. Additionally, cyclical Sectors including Materials, Transportation, Discretionary, and Manufacturing continue to have bullish price and RS trends while defensive areas including Utilities, Staples, and Real Estate are devoid of bullish RS inflections. Leadership from cyclicals and underperformance from defensives are hallmarks of any healthy bull market.
Big Picture Trends.
Banks appear to be stabilizing at logical support. The small vs. large-cap ratio remains above key support, as does the Bloomberg Commodity index. The 10-year Treasury yield remains above 0.62% support. All of these observations suggest a generally positive market environment. We are also watching the US dollar (DXY) closely; it broke above 94 resistance, but that failed to rattle the equity market and the DXY is still below bigger resistance at 95 and 96.
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