Explaining SPX & NDX "Stealth Correction," Crude Oil's "Inflection Point"

Sam (0:00)

Welcome back to Morning Trade Live. It's time now for the big picture. Let's welcome in Rachel Dashiell, who's head of technical research strategy, Schwab Center for Financial Research. Good morning Dash, so we crossed a significant line yesterday, 7800, on the S&P 500 We're losing a little bit of steam today. What levels are you keeping an eye on on the benchmark right now?

Rachel Dashiell (0:19)

Yeah, good morning Sam, great to join you. So yeah, one of the biggest technical developments on the S&P 500 is that we've now gapped above neckline resistance, which appears to be an inverse head and shoulders formation, and using some classical charting techniques that would put a measured objective up near 8050 And we do know patterns are subject to failure, but you know, right now, technicians are probably wondering if price is going to hold. Right now, today's price action is looking like it is not holding that level, that prior resistance or now new support around 7780 It's looking a little bit like an island reversal so far. So I think a lot of market participants may be watching to see where price closed today, since that's going to be the most important price. I would say at the index level, there has been a little bit of warning signs. The MACD for momentum is making lower highs while price breaks to new highs. So that's creating a little bit of a bearish divergence there. So when you're looking for confirmation, you're not necessarily seeing that with momentum. A lot of times these momentum divergences can lead to or early breakouts.

We do have to keep in mind that price is ultimately king when it comes to the technicals. But I would say the caveat here also is going to be seasonality. We're moving into a period that has historically featured some seasonal tailwinds into the end of the year. So I think the question is going to be whether markets can really sustain these weakened periods of momentum and rally into your end, in a year that doesn't necessarily follow typical seasonal trends here, Sam.

Sam (1:55)

All right. So as far as what we've been talking about lately, it's been a lot about how just a handful of stocks have been carrying the indexes higher. Obviously, this dramatic deterioration of breadth under the surface, a lot of stocks trading beneath there, moving averages, et cetera. But have you been encouraged by the improved participation we've seen in recent session? I mean, have you seen some pickup as far as the technical side of things beneath the surface, with what we've seen as far as more solid breadth in recent sessions?

Rachel Dashiell (2:32)

Yeah, Sam, that's a great question for right now because yes, I am seeing a little bit of improvement. I would take it back to your earlier point. I mean, if you just looked at the S&P and NASDAQ, you'd think this market was in great shape all year, but beneath the surface, there is definitely a stealth correction that had been taking place. So that percentage of S&P 500 stocks above their 50 and 200-day moving average felt some of the weakest readings all year. New lows, New York Stock Exchange, New year lows really expanded to some of the highest levels seen over a year, and then New York Stock Exchange, New yearly highs contracted to some of the lowest levels seen in a few years. So we've seen notable breath deteriorations, but I think what's notable now is that a lot of these indicators appear to be turning higher. The advanced decline line has improved from year-long support. The McClellan oscillator, another measure of breath, has rebounded from oversold territories, just crossed above the zero line yesterday. And then those stocks expanding from their 50 and 200-day moving averages are expanding from some of those oversold levels. So I think that is giving a little bit of durability as prices breaking out to new highs. And it's definitely a healthier market when we're breaking to new highs. If we see some of those expansions in breath, I think technicians this week will be looking to see if there is going to be more breath thrusts and more expansion from here, because I think that will ultimately be telling about the market of stocks.

Sam (4:13)

All right. We've got obviously that 10-year note auction to get through today, the FOMC minutes as well. But we'll keep an eye on that as far as the breath is concerned, because obviously we've seen a lot of steam coming out of these sectors moving into sort of more defensive parts of the market, staples, health care today, which has been underperforming in recent sessions. What about crude oil? I mean, how are you looking at the charts on that? You're sort of saying that we're at one of the more important inflection points in the market right now. Why is that?