Explaining SPX & NDX “Stealth Correction,” Crude Oil’s “Inflection Point”

We're trading down half of a percent after a good couple of days for the m seven. Welcome back to Morning Trade Live. It's time now for the big picture. Let's w in Rachel Ducharme who's head of technical research strategy Schwab Center for Financial Research.d morning. So we crossed a significant line yesterday seven 800 on the S&P 500. We're losing a little bit of steam today. Whatevels are you keeping an eye on on the benchmark right now. Yeah. Good morning Sam. Great to join you. So yeah one of the biggest technical developments on the S&P 500 ishat we've now gapped above neckline resistance which appears to 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 no 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 and now new 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 wou say at the index level, there has been a little bit of warning signs. The MacD for momentum is making lower 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. And a lot of times these momentum divergences can lead to false or early breakouts. And we do have to keep in mind that price is ultimately king when it comes to the technicals. But I would say the caveat h 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 question is going to be whether markets can really, you know, n these weakened periods of momentum and rally into year end in a year that doesn't necessarily follow typical seasonal trends here, Sam. All right. So as far as what we've been talking about lately, been a lot about how just a handful of stocks have been, you know, carrying the indexes higher. Obviously, this dramatic deterioration ofeah una lot of stocks trading beneath their moving averages, etc. But have you been encouraged by improved participation we've seen in recent session? I mea have you seen some pick up as far as like the technical side of things beneath the surface with what we've seen as far as sort of more solid breadth in recent session 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 stealth correction that hady a been taking place. So that percentage of S&P 500 stocks above their 50 and 200 day moving average fell to some of the weakest readings all year. New lows, new York Stock Exchange New Year lows really expanded to some of the highest seen over over a year. And the new New York Stock Exchange new yearly highs contracted to some of the lowest levels seen in a few years. So we've seen notable breadth deteriorations. But I think what's notable now is that a lot of these indicators appear to be turning h You know, the advanced decline line has improved from year long support. The McClellan oscillator, another measure of breadth, 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 I think that is giving a little bit of durability as prices breaking out to highs. And it's it's definitely a healthier market when we're breaking to new highs. If we see some of those expansions in breadth, I think technicians this week will be looking see if there is going to be more breadth thrust and more expansion from here, becau think that will ultimately be telling about the market of stocks. All right. We've got obviously that ten year note auction to get through today, the FOMC minutes as well. But we'll keep an eye on that as far as the breadth 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 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 of saying that we're at one of the more important inflection points in the market right now. Why is that? Yeah, I think crude oil is sittingh. So very important inflection point. And because a lot of times when you have multiple technical levels that overlap, it's really the market telng us that, hey, there is a importance that's being stressed at these levels right now. And we actually have multiple forms of support really converginnd essentially the same area. We have the 50 day moving average, d average price from the early highs, anchored VWAP from six month lows, rising channel support and horizontal price support. Really sitting around this 87 to $90 zone. And what's particularly interesting, I would say here, Sam is at the same time that 20 day rolling correlation or that month rolling correlation between crude oil and ten year yields has reached an unusually negative level. And historically, when correlation reach some of these extremes, they often don't stay there forever. Andose adjustments can occur through a moving crude, a move in yields or some combination of both. I think it's also pretty timely that today's FOMC minutes is kind of coming right at a time where technical levels are nearing this possible turning point. And I would say, you know, rates have been extended, just kind of moving from the correlations. Rates have been pretty extended here in the short term. And a lot of times parabolic moves and rates over the past have really been followed by some of these more corrective or larger drawdown times ines. So I'd be interested to see if rates actually catch dth crude oil if crude actually catch up catches up here. But I would say the last thing here, Sam, is what's particularly interesting is that there has been still resilient relative strength in energy stocks. So that's kind of leading a little bit of probably the price narrative of that. Crude prices may begin to h here at support. Okay, understood. Thanks so much for walking us through the technicals today. Really appreciate it. Rachel