(Premium) Technical Market Outlook and November Playbook

No matter how dark the fundamental outlook may be, there’s no denying the strength of the recent rally. If prices are our only guide – and for many of you reading this, they are – it seems as though we’re nearing the light at the end of the tunnel.

US Equities

First things first. This is still a bear market. Prices are below a downward-sloping, long-term moving average. That’s the definition of a downtrend, and we should not be aggressively betting on higher prices, because that runs counter to the primary trend.

Still, there are long opportunities for more agile investors. The index has rallied more than 10% from its lows and there’s another 7% to 4100, the 161.8% extension from the COVID decline. Support is down near 3500, which marked the October bottom and the September 2020 reversal, when Growth stocks peaked relative to Value.

Given the seasonal tailwinds over the next few months, we won’t be surprised to see that 4100 level tested. If we get above there and hold it, we’ll be a lot more constructive on the outlook for returns.

The Dow Jones Industrial Average has been the clear leader, thanks to its relative lack of exposure to places like Information Technology and Communication Services.

It’s already back to the 200-day after rebounding from the pre-COVID highs. For the Dow, it’s the August highs we need to watch. Anything below that should be treated like a bear market rally that’s setting another lower high.

Bringing up the rear is the Nasdaq Composite, still stuck near the June lows. There’s no reason to be involved with this if we can avoid it. It’s the least constructive of the major indexes and has shown relative weakness all year.

Small caps, on the other hand, are showing relative strength. They’re a lot more exposed to areas like Health Care and Financials as opposed to Tech, so as a group they never even broke their June lows. It’s still in a downtrend, but unlike the large cap indexes, this one has shown one clear sign of a reversal – it stopped going down months ago.

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