Utilities are having the best year since 2000. What’s Next?

Equity trends have started to waver lately, with the first attempted pullback following the stalling out of the last week. While momentum and breadth look to have peaked, one cannot rule out that any topping process proves to be a work in progress and won’t be as easy as this week has made it seem. Overall, I feel that Equity indices could prove choppy in the next week before peaking near end of month and giving way to a 5-7% pullback throughout the month of November. As discussed, the drying up in breadth and volume seems to be a warning sign to pay attention to following an extended run.  Technology has underperformed lately, and this lagging behavior combined with cyclical and sentiment-based issues arguably should lead Equities lower in November. While intermediate-term bullish thesis remains very much intact, it’s doubtful that US Equities continue to push up into and post-election without any consolidation. Moreover, November's weakness should represent a short-term correction only, not the start of a larger decline.  Risk/reward seems poor in the short run, and SPX seems unlikely to exceed 6000 right away but could find initial resistance near 5900-5935.  Meanwhile, QQQ should find resistance at 503-505.

SPX showed its first break of 5820 on Wednesday, which represents the start of a peaking process that might take a week (or two) before leading SPX lower in the month of November.

As shown below, one-month uptrends have been broken for SPX, though the trend from August lows remains very much intact.

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