1/ Next Support for the S&P 500
2/ Can Small Caps Finally Bounce?
3/ The Critical Level for XLC
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1/ Next Support for the S&P 500
The S&P 500 fell over 2% last week, which was its second straight weekly decline of at least 2%. This last happened from the weeks of 12/5 – 12/12/22. The last three-week run of -2% weeks occurred from the weeks of 9/12 – 9/26/22. Overall, there were SIX -2% losing streaks in 2022.
With this continued market decline, the number one question is “when will the selling end?”
Here’s one thing we know: the index is getting closer to its 200-WEEK Moving Average, which currently is around 3,940. As is quite clear on this long-term chart, the SPX found demand near this line at other critical low points in 2016, 2018 and 2022.
If the bull run from the last decade-plus is destined to last much longer, seeing buy interest surface around the long-term moving average would be a constructive sign.
2/ Can Small Caps Finally Bounce?
The Russell 2,000 ETF (IWM) continues to display relative weakness. It just dropped for the fourth straight week, which is its longest weekly losing streak since five straight from 4/18-5/16/22.
IWM’s latest decline pulled it all the way down to its 2022 lows. It’s now down 18% from its July high and testing major support.
Unlike the S&P 500, it has been oscillating around its 200-Week Moving Average since first under cutting it in May’22. That’s a sign of a market searching for direction, however, with so many other ETFs, indices and stocks still up for 2023, it has underperformed.
However, there could be a silver lining: Right now, the IWM is trading at its greatest discrepancy below the long-term line since the 2020 COVID-induced market crash, which increases the odds of the next mean-reverting rally attempt happening soon.
Also, IWM undercut the 200-Week Moving Average before the long-term rallies commenced after the 2016 and 2018 lows.
3/ The Critical Level for XLC
As the chart shows, Heating oil turned lower before the Dollar surged higher and the crude price fell from its peak. At the time, I started to hear the news of a warmer winter and began to watch the inventory picture from the DOE a bit closer (you can find that data here: https://www.eia.gov/petroleum/supply/weekly/ ).
The inventory picture was favorable for prices but with the arrival of September, the picture has improved and is weighing on prices. While still not at the top of 5-year ranges, the picture is slowly moving that way. Add in warmer weather and things move quickly against Heating oil. My belief in the energy markets for the winter can be summed up best by “so goes heating oil, so goes the market.” Weak fundamentals will weigh on heating oil and drive energy prices lower.
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Originally posted 30th October 2023
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