Analysis: XLE

* A strong finish to the market's November rally, but warning signs are flashing

* October core PCE data matches expectations, but no big downside surprise in the data

* Here's our expectation for OPEC+'s meeting

* Williams today, but Powell tomorrow 

Following the October PCE Price Index coming in as expected, early US equity trading points to the November rally closing out on a positive note and likely pushing the S&P 500 into overbought territory. This will keep us on the sidelines as we close out the month and soon start the final one for 2023.

We're waiting for OPEC+ to conclude its policy meeting, and with China's NBS data for November falling compared to October, suggesting more stimulus is needed, we suspect OPEC+ will, at a minimum, extend its current production cuts, but we wouldn't be surprised to see the group cut production even further to prop up oil prices. Such an announcement would build on the recent move higher for our shares of the Energy Select Sector SPDR Fund (XLE) . 

Overbought Status Approaching for the S&P 500 

On this week's Action Alerts PLUS Podcast, CMT Board Member Jay Woods shared that he watches the Relative Strength Index (RSI) closely when it comes to the market and individual stocks, noting a reading over 70 signals "overbought" while one under 30 tells us it is "oversold".

The RSI for the S&P 500 closed yesterday at 69.14, which means we are knocking at the overbought door. We'd also note the CNN Fear and Greed Index is well into "Greed" status, and AAP team member Helene Meisler noted the latest AAII Investor Sentiment Survey shows the Bulls are back at their highest level (48.8%) since late July-early August.

This combination suggests the market's run is likely to run out of gas in the near term, something we shared would be an opportunity to pick up shares at better prices as short-term traders take profits following the market's robust November move. 

October PCE Price Index 

We've been waiting for the Fed's preferred inflation metric for October and the report out this morning showed headline PCE was flat compared to September and up 3.0% on a year-over-year basis. The more closely watched core PCE matched market forecasts, coming in at 0.2% month over month and 3.5% year over year.

Both of those core figures are down compared to the September ones, but there was no big downside surprise in the data. While that may disappoint some and given the post-report uptick we're seeing in Treasury yields, pulling the lens back a few months reveals the continued progress we've seen in the data, which has steadily fallen since hitting 4.2% year over year in July. 

Our thinking is the data supports the view the Fed is done with rate hikes but it's not going to pull forward for the Fed's first rate cut timing. For that we'll need to see more progress in the upcoming November data for the CPI and PPI, and eventually the core PCE data as well. 

Williams Today, Powell Tomorrow 

When New York Fed President John Williams speaks at 11 am ET today, we suspect he will support that view, sticking with the Fed playbook of "good progress" but still needing to see more. What we and the rest of the market will be waiting for is any change in language or sentiment from Fed Chair Powell.

Here's the thing: Powell's comments come not only after today's economic data but also the conclusion of OPEC+'s policy meeting and the next iteration of monthly PMI manufacturing data. To us that makes his comments far more important.