ChartWatch: US stocks approach major resistance, the key levels to watch

In today's ChartWatch I'll investigate the charts of several key macroeconomic indicators, as well as drill down to the key charts impacting the Australian stock market. The goal? To help set up your investing week!

NASDAQ Composite

The NASDAQ Composite is the world's key risk-on stock index

NASDAQ Composite chart key observations:

• ST/LT Trends: Up / Up

• Price action: Higher peaks and higher troughs

• Candles: Predominantly white since 26 October low

• Points of potential excess supply: 14447 (i.e., the 2023 bull market high), 14647

• Points of potential excess demand: ST trend ribbon @ 1368-13820

Commentary: The demand-side appears firmly in control here, and therefore I have no reason to doubt the prevailing trends. I am watching for potential supply-side signals between 1447 and 14647, though, as I expect the 2023 bull market high will be an important short term resistance point.

Why the NASDAQ Composite is an important chart to watch: The NASDAQ is widely considered the world's key "risk-on" stock index. This means its constituents are very sensitive to economic growth, and for the NASDAQ in particular, also highly sensitive to moves in interest rates.

Russell 2000

Russell 2000 is a great representation of what's happening in the heart of corporate America

Russell 2000 chart key observations:

• ST/LT Trends: Up / Down

• Price action: Higher peaks and higher troughs

• Candles: Predominantly white since 26 October low

• Points of potential excess supply: 1830

• Points of potential excess demand: ST trend ribbon @ 1753-1758

Commentary: It has been an impressive rally since the 27 October low, punctuated with candles indicating a tectonic shift in the demand-supply environment towards excess demand. 1830 is clearly the key level now, a close above this point is a massive vote of confidence in corporate America.

Why the Russell 2000 is an important chart to watch: Constituents are smaller capitalisation companies, and therefore considered to be an excellent representation of what's happening in the broader US economy.

US Long-Term Interest Rates

By far and away, the single biggest reason stocks have rallied since the end of August is the pullback in long term US interest rates. Tough talk by the US Federal Reserve (the "Fed") on inflation, greater issuance of securities by the US Treasury to fund the growing US debt burden, as well as more attractive interest rates in Japan each combined to drive long term US rates higher.

One of the oldest relationships in investing is: Stocks hate higher rates!

So, as inflation expectations have eased since late-October, and as the market has translated this into a benign Fed going forward, long term rates have tumbled.

Inflation expectations have eased substantially in November

The benchmark for long term US interest rates is the yield of the US 10-Year Bond. The first thing you'll notice from the chart below, is how closely the upswing from July to October in long term yields corresponds with a downturn in the NASDAQ Composite and Russell 2000.

One of the oldest relationships in investing is: Stocks hate higher rates!

We know that central banks usually deal in 0.25% hikes or cuts. Well, since the October peak, the yield on the US 10-Year T-Note has plummeted by around 0.60%. That's akin to the market factoring in two rate cuts by the Fed. Going forward, this is the key chart you want to watch – expect another spike here to tank stocks, and vice versa.

Let's bring it back home and investigate the key technical factors impacting the Australian stock market.

S&P/ASX 200 (XJO)

The local benchmark is potentially at a key technical inflection point

S&P/ASX 200 (XJO) chart key observations:

• ST/LT Trends: Up / Down

• Price action: Lower peaks and lower troughs ⚠️

• Candles: Predominantly white between 31 October low and 15 November high, mixed since

• Points of potential excess supply: 7126

• Points of potential excess demand: ST trend ribbon @ 7000-7010, 13 November low @ 6948

Commentary: Another example of an impressive rally since the October low. The return to lower peaks and lower troughs is disturbing, though, as it demonstrates supply reinforcement and demand removal in the short term.

Still, the correction caused by this price action is mild compared to the preceding rally, so I'm not reading too much into it yet. It's hard to get excited about the Aussie stock market until a close above the key supply point of 7126. The 13 November low of 6948 is an important point of demand, my tip is we don't want to close beneath there!

ASX sector trends

Plenty of downtrends across S&P/ASX 200 sectors

Looking at ASX sectors, the table above hardly reflects a clear vote of confidence in the local stock market. Gold looks interesting, though, and the spot gold price is also showing some bullish technicals (I'll cover these in tomorrow's ChartWatch). Technology looks precariously placed, so I suggest exercising caution there, and Staples remains all one-way traffic to the downside.

The S&P/ASX 200 Information Technology sector index is precariously placed

The S&P/ASX 200 Information Technology sector index (XIJ) appears to be potentially slipping into a long-term downtrend. Its inability to trade above the long-term trend ribbon is symptomatic of possible distribution in the system for local tech companies. A close above the 9 November high of 1736 would rescue the situation, however, but a close beneath the 30 October low of 1577 would confirm a new long-term downtrend.