Treasury Yield reversal provides the necessary clue

The lower than expected CPI report coincided with many risk assets moving sharply higher on Wednesday to levels right near the 50% retracement of the entire $SPX selloff from January into June. As written in last night’s note, “Wave structure cannot completely rule out one final push higher post CPI, though this should prove short-lived and reverse course.”  Given that Treasuries reversed sharply lower Wednesday after early gains, my expectation is that S&P also should be close to reversing, and it should be wrong to press long bets given that Elliott wave counts look nearly complete while DeMark exhaustion is present on several intra-day timeframes.  While I’ve stated that $SPX likely pushes up into 4350 into mid-September, I am skeptical that this proves to be a straight line, and consolidation looks necessary by Friday.

Overall, it’s worth noting that my defensive stance in recent days has not yet proven correct as the sideways consolidation/stalling out which was discussed has now led higher, not lower.

Importantly, I don’t think much has changed based on Wednesday’s rally.  First, DeMark counts on 60, 120, 240 minute $SPX charts are now showing exhaustion.  Second, Elliott-wave patterns now show Wednesday’s rally as being the fifth (and final) wave up from mid-July.  Third, momentum is now growing stretched, and failed to confirm Wednesday’s minor consolidation breakout.  Fourth, Treasury yields have turned back higher and reversed Wednesday’s early decline.  Fifth, most of the largest moves on Wednesday happened in some of the worst technical groups like Cruiseliners and Airlines.  Sixth, my cycle composite shows consolidation likely into next week.

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