Weekly Trader's Outlook

If you read last week's blog, you may recall that Nate maintained a "higher volatility" forecast along with a "moderately bearish" outlook, citing technical damage across the indexes. He highlighted the tech stock sell-off as well as defensive rotation, which continued this week.

The S&P 500 and the Nasdaq-100 appear to have broken key levels of support, completing their double-top patterns. The Russell 2000's near-term bounce was stalled at the 50-day moving average (SMA) followed by a nasty break below the 200-day SMA. Semiconductors also continued their downtrend, as they are trading roughly 15% below their 200-day SMA at the time of this writing on Thursday. Conversely, crude oil, despite its aggressive sell-off this week, appeared to have held support at its 200-day.

We are roughly 70% through earnings season and earnings growth appears to be broadening.

At the time of this writing on Friday, all the major averages are lower, as the market reiterates its "risk-off" tone as the "stealth bear market" continues. Money continues to rotate into sectors such as Staples, Health Care, Utilities, Real Estate, Financials, and Materials and out of sectors such as Technology.

Volatility could continue to remain elevated, with the Cboe Volatility Index (VIX) above 20, representing roughly 1.26% daily move in the S&P 500.

As yields, as well as energy and commodities appear to soften, bond prices are showing signs of a potential bottom.

I am going to stick with a "higher volatility" forecast for next week, along with a "bearish" outlook, given Thursday's technical damage and continued rotation toward more defensive areas of the market.

What could challenge that outlook? Technology has been sold aggressively across the board, pushing several measures into oversold territory. While oversold conditions can persist during strong downtrends, historically they have also increased the potential for a near-term countertrend bounce. Such a rebound, particularly if accompanied by improving breadth and renewed Technology leadership, could challenge the bearish outlook.

• Monday (Nov. 9): Wholesale Trade Sales, Wholesale Inventories, New York Fed 1-Year Inflation Expectations
• Tuesday (Nov. 10): NFIB Small Business Optimism, ADP Weekly Employment Change, Consumer Price Index (CPI), Core CPI
• Wednesday (Nov. 11): MBA Mortgage Applications
• Thursday (Nov. 12): Initial Jobless Claims, Continuing Claims, Existing Home Sales, Federal Budget Balance
• Friday (Nov. 13): Producer Price Index (PPI), Core PPI

• Monday (Nov. 9): Affiliated Managers Group Inc. (AMG), Constellation Energy Corp. (CEG), CNH Industrial N.V. (CNH), Ferguson Enterprises Inc. (FERG), Ionis Pharmaceuticals Inc. (IONS), JBS N.V. (JBS), KKR & Co. Inc. (KKR), NRG Energy Inc. (NRG), RB Global Inc. (RBA), Roivant Sciences Ltd. (ROIV), Bio-Techne Corp. (TECH), AAON Inc. (AAON), AST SpaceMobile Inc. (ASTS), Clearway Energy Inc. (CWEN), Occidental Petroleum Corp. (OXY), Rocket Lab Corp. (RKLB), Take-Two Interactive Software Inc. (TTWO)
• Tuesday (Nov. 10): On Holding AG (ONON), TransDigm Group Inc. (TDG), CoreWeave Inc. (CRWV), Corteva Inc. (CTVA)
• Wednesday (Nov. 11): Tetra Tech Inc. (TTEK), VYLR
• Thursday (Nov. 12): Dillard's Inc. (DDS), FIGR, NIO Inc. (NIO), YETI Holdings Inc. (YETI), Applied Materials Inc. (AMAT), Cisco Systems Inc. (CSCO), Nu Holdings Ltd. (NU)
• Friday (Nov. 13): No notable earnings reports scheduled

The economic data continues to remain strong, and the weight of the evidence still points to a fairly resilient economy. Growth remains relatively firm, inflationary pressures appear somewhat sticky, and the labor market seems to be stable rather than deteriorating sharply. From a market perspective, that combination may be important for the rate outlook because it could give the Federal Reserve less urgency to ease policy aggressively. And that provides another reason to continue watching the 10-year Treasury yield closely from a technical perspective.

• S&P Global US Manufacturing PMI: 54.9 vs 56.0 est.
• ISM Manufacturing: 55.5 vs 54.5 est.
• ISM Prices Paid: 75.2 vs. 77.2 est.
• ISM New Orders: 55.5 vs 55.0 est.
• ISM Employment: 52.4 vs 52.0 est.
• Construction Spending MoM: -1.9% vs 0.3% est.
• JOLTS Job Openings: 7,523k vs 7,164k est.
• Factory Orders: 1.8% vs 1.2% est.
• Durable Goods Orders: 1.9% vs. 1.8% est.
• MBA Mortgage Applications: -1.2% vs 3.4% prior.
• ADP Weekly Employment Change: 86k vs 67k est.
• Trade Balance: -$105.0b vs -$107.9b est.
• Imports MoM: 1.2% vs 1.5% est.
• Exports MoM: 1.9% vs 1.8% est.
• ISM Services Index: 54.5 vs 54.8 est.
• S&P Global US Services PMI: 56.1 vs 57.9 est.
• S&P Global US Composite PMI: 55.9 vs 57.3 est.
• Initial Jobless Claims: 189k vs 196k est.
• Continuing Claims: 1,718k vs 1,710k est.
• Change in Nonfarm Payrolls: 165k vs 65k est.
• Average Hourly Earnings MoM: 0.4% vs. 0.3% est.
• Unemployment Rate: 4.1% vs 4.2% est.
• Underemployment Rate: 7.9 vs 7.5% est.
• University of Michigan Sentiment: 51.0 vs 48.0 est.

U.S. Treasury yields moved lower this week, with much of the decline occurring following the midterm elections as investors reassessed the outlook for fiscal policy, inflation, and economic growth. The sharp decline in crude oil prices may have also helped ease some near-term inflation concerns, providing an additional tailwind for Treasuries. Despite the decline in yields, market expectations continue to favor additional Fed tightening.

The S&P 500 appears to have completed its double-top pattern, with old neckline support near 7,600–a level that may act as new potential resistance. Using classical charting techniques, the pattern carries a measured objective near the summer lows at the 200-day simple moving average (SMA) around 7,300. Pattern price objectives are not guaranteed to be reached, and technical patterns can fail.

The Average Directional Index (ADX), a trend strength gauge, has accelerated from a low in a trend direction as price continues to weaken. An ADX reading above 20 indicates a strong trend.

Growth continues to weaken relative to value, providing further evidence that the shift in market leadership may persist. This rotation could continue to have implications for sector and broader index performance, particularly given the significant influence growth-oriented stocks have had on market returns in recent years.

Two key relative-strength relationships that provide insight into risk appetite and the broader market regime appear to have broken neckline support of their potential double-top formations: High Beta relative to Low Volatility and Technology relative to the S&P 500. Together, these breakdowns may be consistent with a shift toward a more risk-reducing market environment.

Near-term technical translation: neutral/cautious

This week, the Nasdaq-100 broke the 200-day SMA near 27,980, which may now act as potential resistance. Underneath the 200-day sat another layer of longer-term support, the July lows near 27,150, which acts as the double-top neckline. If the pattern completes with a sustained break below this neckline, that level may become new potential resistance. Using classical charting techniques, its measured objective would be near the yearly lows around 22,840, though technical patterns can fail and measured objectives are not guaranteed to be reached.

The relative strength index (RSI) fell below 30 into oversold territory (an RSI reading below 30 is considered by technicians that an asset/security may be oversold), a condition that coincided with mean reversions in March earlier this year. A move back above 30 may provide additional evidence of improving momentum.

Positioning data in E-mini Nasdaq-100 futures continue to capture attention. According to Commitment of Traders (COT) data, large speculators remain near some of their most net long positioning of the last five years, currently near the 97th percentile. Perhaps more notable is the speed of the shift, with positioning moving from the 0th percentile in August to the 100th percentile just three weeks ago. The magnitude and pace of that change have been unusual relative to the past five years.

Conversely, commercial hedgers are near some of their most net-short positioning over the same period. Some technicians may view the combination of elevated speculative longs and extreme commercial shorts as supportive of a more cautious or bearish outlook. Positioning data is not predictive and should not be used in isolation, but these extremes may suggest that downside risks warrant closer attention.

Near-term technical translation: bearish

Crude oil appears to have approached a potential key technical zone after breaking trendline support of its rising channel.

The $87-89 area contains four layers of potential support: 1) polarity, where former resistance may be acting as support; 2) anchored volume-weighted average price (AVWAP) from summer lows; 3) 200-day SMA; and 4) potential double-top neckline.

If that neckline were to break, classical charting techniques would suggest a measured objective near the summer lows around $67, although technical patterns can fail and measured objectives aren't guaranteed. If the pattern fails and crude holds or quickly recaptures this support zone, technicians may look back toward the former highs near $105 as potential resistance.

But perhaps more interesting is what's happening in Energy. The sector had been a relative leader, but its relative strength versus the S&P 500 has recently broken its rising trendline.

If crude loses support while Energy continues to weaken relative to the broader market, that could signal an important shift in recent market leadership and potentially further rotation into other areas of the market.

Near-term technical translation: neutral/cautious

The Bitwise 10 Large Crypto Index is down 2% since last Friday, with bitcoin down 1% and ether flat at the time of writing. Only a little over a week removed from the largest crypto heist on record, crypto markets are relatively calm. It became apparent early in the response to the hack that a combination of frozen assets and the impacted exchange covering the remaining losses would largely shield customers from the financial impact. Bitcoin fell only about 5% at the peak of the hack, an important reminder that markets are discounting machines. Historically, risk assets have often struggled with uncertainty more than with known outcomes. Once the range of potential outcomes narrows, even if the result itself is not necessarily "positive," investors have greater clarity to position around it. Earlier this week, the midterm elections removed another layer of uncertainty from the market.

A famous phrase offered by Donald Rumsfeld in a 2002 Pentagon press briefing can provide perspective for investors: "There are known knowns… there are known unknowns… But there are also unknown unknowns." The past few weeks have offered a little of each.

Known knowns. The continued impact of energy prices on inflation, tariffs, and weakening consumer confidence are all risks investors can identify and increasingly quantify. The questions surrounding them are less about whether they exist and more about how much they ultimately matter.

Unknown unknowns. Geopolitics remains the clearest example. The path toward resolution in Russia/Ukraine and Iran remains difficult to anticipate, as does the timing and magnitude of the market impact. The recent crypto heist was another example.

Known unknowns. Three recent events sat squarely on the calendar over the past few weeks: 1) the latest Federal Open Market Committee (FOMC) decision; 2) third-quarter AI earnings; and 3) midterm elections. Investors knew when answers were coming, but not necessarily what those answers would be.

To quantify the market reaction to these types of events, we compared daily moves across traditional markets (S&P 500, VIX, 10-year Treasury yields, gold, the U.S. dollar, and oil) with each market's own trailing 20-day volatility. We then measured how unusual each move was, regardless of direction, and averaged the results to create a broader measure of market impact. The same process was done for crypto markets, using bitcoin and ether. The interesting thing is that crypto impacts did not stand out relative to traditional markets, with the exception of the yen carry trade unwind in August 2024. We separated the pre- and post-spot exchange traded product (ETP) launch periods because, following the launches, bitcoin's and ether's correlations with equities rose.

Now that the midterm election results are known, the October FOMC meeting is behind us, with the next meeting taking place around December 8–9, and much of the major artificial intelligence (AI) earnings cycle has played out, providing investors with a better foundation for expectations heading into the next quarter. With several of the known unknowns that have weighed on investor sentiment now at least temporarily behind us, attention can begin to turn toward the trends we do know as investors look ahead to 2027, specifically the corporate adoption of blockchain technology and further mainstream adoption of cryptocurrencies.

That said, some new uncertainty has emerged surrounding AI capital expenditures (capex) post-election. The potential positive for crypto investors is that, if AI capex becomes constrained, miners that have pivoted toward high-performance computing may find themselves rebalancing their businesses toward bitcoin. In Bitcoin Mining Economics and the Pivot to AI, we identified several AI capex scenarios and their potential impact on bitcoin.

Jim Ferraioli, Head of Crypto, Commodities, Technical Analysis and Derivatives Research, authored this report.

Despite the apparent price weakness at the index level, market breadth has continued to improve underneath the surface. Looking first at intermediate-term trend breadth, the percentage of S&P 500 stocks trading above their 50-day SMAs exceeded 70% this week. The previous two instances near this level had similar outcomes; both occurred before the broader market corrected.

Breadth momentum is also strengthening. The McClellan Oscillator, which measures changes in daily market breadth using 19-day and 39-day exponential moving averages (EMAs) of net NYSE advancers, recently moved above +100, a level commonly viewed as overbought. However, this may suggest that the market is stretched under the surface.