Equity prices have been stuck in a tight range for over two weeks, struggling to top important Fibonacci resistance. Fortunately for bulls, another holiday has arrived.
SPX is within striking distance of our Jan 8 Inverted Head & Shoulders target [see: A Look Ahead at 2024.]
The most important chart pattern for SPX is the large Inverted H&S Pattern which completed on Dec 11. It points to 5727 (a 24.5% rise from the neckline) and, if it’s to align with the large rising yellow channel, would reach its target in late June 2024.
Can stocks push through the current resistance? The answer lies not in the stock market, but the bond market.
continued for members…Funny things happen to the market over holidays. The very low volume makes it much more likely that algo-driven indices can top those pesky resistance levels.
This is the 2.618 Fib extension created by the 2020 crash.
If it can push above, ES has no real resistance to worry about until it reached the white 11.618 at 5967. As we’ve noted many times, this aligns with the IH&S target.
The SPX version is at 5638, with its IH&S target at 5727.
As far as driving the algos higher, it’s the usual suspects. VIX is in position to make new lows, and its RSI is suggesting that that’s imminent.
EURUSD is poised to push above its SMA200 again.
USDJPY is, of course, continuing its meltup.
As a result, DXY is close to breaking down below the red TL again.
As we’ve highlighted all year, the biggest risk to the bulls is oil/gas prices. CL was recently rebuffed by the dashed purple TL after its recent 15% rally.
RB recently pushed above its SMA200 and, unlike CL, has not broken down from the rising channel established at the COVID lows. It has risen over 14% in the past month.
A breakout by either CL or RB that sends gas prices even higher would threaten the 10Y’s latest downturn and potential breakdown.
While the 2Y v 10Y chart looks like more of the same…
…the 2s10s is back at a critical level of resistance. Remember, a breakdown of 2s10s can cause corrections, while a breakout can cause crashes. The bulls need the 2s10s to reverse lower right now. This means a relative rise in 2Y yields or a drop in 10Y yields.
A significant drop in oil/gas prices or weak economic data (such as Friday’s jobs report) could certainly help. And, with Trump’s election odds improving over the past week, there is a real risk that oil prices will muddy the inflation picture.
Bottom line, the market is correctly concerned about the fundamental picture. However, the past 15 years of holiday outcomes suggests it will find a way – with the help of algos – to overcome the fundamentals.
Stay tuned…