The S&P 500 has hit a wall at 4,400, indicating that bulls may be losing momentum
Stocks fell yesterday as the S&P 500 hit a wall at 4,400, providing significant resistance. The zero gamma level, which is a support or floor, has been moving higher due to the call wall’s strong resistance. The S&P 500 flip level was at 4,360, and the index fell below that support level to close at 4,347. If everything remains the same and levels don’t change in the morning, today the S&P 500 will be back in negative gamma, potentially adding volatility to the market.
The selling was sparked by the Treasury auction that took place last week, with the 3-year and 10-year auctions going well earlier. The 30-year auction was worse than last month’s disaster auction, with the rate trading at 4.716% and the high yield priced at 4.769%. Powell reiterated the same message last week, but the mechanics of the market were positioned differently, leading to a different outcome.
The call wall is likely to remain at 4,400, so even if it bounces back today, volatility could rise and push prices down. The pain trade seems to be lower, as most investors are expecting a year-end melt-up. A bearish engulfing pattern on the S&P 500 and Nasdaq 100 also occurred, with the 10-year bond surviving a big test.
A 2b Top in the SMH ETF has formed, which extends back to mid-September, suggesting the SMH returns to its October lows. This is ironic because the pattern in the S&P 500 suggests the same outcome.
Amazon stock is deemed vulnerable near $150 due to the potential vulnerability of bulls
Amazon’s stock has seen a 65% year-to-date increase, with the stock approaching new yearly highs and Wall Street betting on 2024 rate cuts. However, the 4-hour chart suggests that the recovery from $81.43 has evolved into an almost complete five-wave impulse, with the September-October pullback fitting in the position of wave 4. The current rally fueled by the company’s Q3 earnings report is the fifth and final wave of the pattern, with targets near $150 a share within the bulls’ reach. However, at that point, the pattern would be complete and a notable three-wave retracement should follow. Corrections usually erase the entire fifth wave, resulting in a drop back to the support under $120 in wave (B), a 20% pullback before the uptrend can resume in wave (C). Amazon is undoubtedly one of the strongest businesses ever created, but its short-term stock price performance is likely to underwhelm.
Strategies to gain exposure to the under-explored, dividend-bearing insurance sector
The insurance sector offers a great option for investors seeking stability and dividend-paying stocks. This sector is resilient during market uncertainty and has the capacity to reward shareholders with attractive dividends. The iShares US Insurance ETF (NYSE:IAK) stands out as a top choice, showcasing robust performance over the past 3 to 5 years.
The insurance sector’s inherent strengths make it an intriguing option for investors. Rising interest rates make savings more attractive, particularly in the life-savings segment. Even if interest rates stabilize, the sector should fare well. The sector emphasizes financial strength and reliability, with a robust return on capital. The prospect of positive surprises in profit margins and revenue growth highlights the sector’s adaptability to market shifts. Dividend yields and share buybacks offer additional considerations for investment.
Balanced capital and risk management maintain the sector’s stability, while resilience in reinsurance bolsters its enduring strength. Three stocks that have fared well over the past year or so are Progressive Corp (NYSE:PGR), Assurant (NYSE:AIZ), and Arch Capital (NASDAQ:ACGL). Progressive Corp offers auto, homeowners, residential and commercial property, general liability, and other specialty products. Assurant operates through two segments: life and homeowners, with an expected EPS growth of +6.33%. Arch Capital offers insurance, reinsurance, and mortgage insurance products worldwide.
Top three ETFs to gain exposure to the insurance sector include iShares US Insurance, S&P Insurance ETF, and Invesco KBW Property & Casualty Insurance ETF. iShares US Insurance manages $376 million and has a commission of 0.40%, holding shares of more than 50 insurance companies. Over the past 5 years, it yielded +10.48% and over the past 3 years, yielding +19.19%. S&P Insurance ETF has yielded +8.76% and over the past 3 years, yielding +15.54%. Invesco KBW Property & Casualty Insurance ETF charges a commission of 0.35% and has yielded +9.96% and over the last 3 years, yielding +6.50%.
EUR/USD is experiencing a bullish formation near a channel peak
EUR/USD is trading in a rising channel formation, resembling a bearish flag, but recent signs suggest it’s not straightforward. The bearish flag formation isn’t ideal due to a lack of sharp sell-off and a long time in the flag. However, the recent price rally has arguably shown the opposite. The price has rallied back to the upper end of the channel, but hasn’t broken significantly above or held. Instead, it’s easing lower and appears to be edging higher again. The 4-hour chart below highlights this better and arguably shows a better example of a flag formation, albeit bullish in this case. The initial price action from the start of the month looks more powerful and the flag is shorter. Yesterday’s breakout could be a bullish signal at a time when the pair is already trading near the top of the orange longer-term channel. A break of this could be significant.
The USD/JPY exchange rate is experiencing a resurgence, but the duration of this increase remains uncertain
USD/JPY is aiming to resume its bullish trend ahead of Powell’s speech, having softly pipped near the 149.30 level at the start of the week. To attract new buyers, the bulls must surpass the nearby resistance of 151.65 and move beyond the 2022 top of 151.93. This could lead to the price picking up steam towards the resistance trendline area at 153.00 or jumping into the constraining zone from March-June 1990. However, mixed technical indicators do not convince traders of the bullish scenario. The narrowing Bollinger bands suggest a potential explosive move, but the direction is unclear. A downside correction could still be possible in the coming sessions, with a sell-off expanding towards the 146.55-147.30 territory. To boost buying confidence, the pair needs to crawl above 151.93 and strengthen its uptrend above 153.00. A sharp depreciation in the yen could prompt another round of FX intervention by Japanese authorities.