Treasury yields remain the key for Stocks in the near-term

Markets remain in a window where a change of trend should happen technically, but SPX requires more proof to have conviction that this is in place.  The decline in US Dollar and Yields has not gotten underway yet, and this remains problematic for the Bull case for Equities.  SPX exceeding 4527 would be more convincing proof of a low at hand.

Both SPX and QQQ managed to record official TD Buy Setups as of Monday’s close (8/14/23) (DeMark indicators) SOX also confirmed the same signal, and gives some hope that a low might be at hand.

Short-term US Dollar strength managed to exceed prior weekly highs and 200-day moving average intra-day before late-day weakness. (per DXY)  Yet, the larger neutral trend has not been exceeded.  It’s expected that DXY is close to peaking out, and Monday’s price action did not change that view.

US Treasury yields remain quite important as a possible catalyst for Stock indices in both directions.  The early upward thrust in TNX above 4.20% served to spook stock indices.  Yet this proved temporary, and Technology rebounded sharply, despite the uptick in rates.  

Both China along with the Metals have proven disappointing and have not turned higher as quickly as thought possible.  Both of these look dependent on real rates and the US Dollar rolling over before these can work.  While these trades might have been delayed a bit, I remain positive on both as technically sound ideas which can work in the back half of 2023.  Monday’s price action does not merit any sort of hedging on this long thesis.

Semiconductor shares rebounded sharply after SOX formed its TD Buy Setup.  This group looks particularly attractive after near-term oversold conditions happened as part of an intermediate-term bullish trend.

Overall, as this hourly SPX chart shows below, the area near 4527 has quite a bit of technical importance.  This lined up near the initial spike lower in late July along with intersecting near last week’s intra-week highs.

If SPX can manage to close above this level at 4527, then it’s my view that the downtrend from 7/27/23 has run its course.  Movement back to test and break out above 4600 should occur.  At present, more evidence is needed to suggest a stock market bottom is in place.

US 10-year Yields have pushed up to new highs for 2023

Yields have not yet peaked given Monday’s push higher to new 2023 highs.  While daily DeMark charts show yields close to exhaustion and cycle composites look to be peaking, yields have not shown adequate evidence thus far that peaks have occurred.

This does not warrant a reversal in my stance.   I do not believe the next few months will bring about higher yields, but the opposite.  However, the daily chart does look bullish in the near-term given yields having spiked to the highest levels since November 2022.

This could bring about a short-lived move to 4.30%, and if this happens quickly, I suspect that stock indices could be spooked by this rapid ascent in yields.  Overall, the area near 4.30% should be strong resistance to yields, and expect that Treasury yields have limited upside.

DeMark signals on both TNX and TYX show possible exhaustion on weekly charts within two weeks

While the daily charts look quite positive for yields to most investors, weekly charts are closing in on resistance at a time when counter-trend upside exhaustion could be reflected within the next two weeks on both TNX and TYX on further yield gains.

Both TNX and TYX look to possibly show these signals by the end of August if yields continue to climb.  Note, these signals are not yet in place, but would reflect a possible TD Sell Setup which directly follows the unconfirmed TD Sequential “13 Countdown” signal (SELL) which happened a couple weeks ago.

In plain English, this counter-trend methodology would possibly help daily and weekly exhaustion signals to line up simultaneously, which technically gives a heightened probability of a possible change in trend.

Technically I view this as being important given that yields are now approaching important levels from last Fall at a time when sentiment has become quite bearish for Treasuries.  Cycle composites on TNX suggest that yields should be peaking and could fall throughout the back half of 2023 before yields turn back higher in 2024.

Overall, keeping a close eye on Yields will be important for evidence of these signals materializing, being confirmed and then uptrends giving way.  At present, the signals are premature but could be in place within two weeks on both TNX and TYX.

US Dollar remains within consolidation, and looks close to meaningful resistance

Many within the Financial media were quick to highlight that the US Dollar index (DXY) had successfully reclaimed its 200-day moving average (m.a.) which they felt could be a bullish development according to most market technicians.

As many readers know, I do not utilize the 200-day m.a. as a timing tool.  Furthermore, trends in DXY remain intact, with Monday’s gains having not achieved any type of technical breakout.

I continue to believe that an upcoming peak in DXY is near.  This should be close to happening, and USDJPY looks to be close to a peak, whereas EURUSD and GBPUSD are very close to bottoming out.  

A coming peak in the US Dollar looks likely based on a combination of Elliott-wave analysis along with traditional technical structure and market cycles.  This should result in the DXY moving back lower to test and break of July 2023 lows.

DXY should not surpass $104.50 in this view, and the next few days should result in DXY stalling out as it approaches this downward sloping trendline.

30-year Mortgage rates have just surpassed 7.50%

In what might be a rather unsettling piece of news, the 30-year mortgage rates have just exceeded the former highs which were made last Fall in 2022.

30-Year Mortgages have just hit 7.53% which represents the highest rate since Fall 2000, more than 20 years ago.

Traditional technical tools like momentum analysis and Elliott-wave analysis both show the possibility of a coming peak, based on the combination of negative divergence combined with a five-wave advance in 30-Yr mortgage yields (based on an initial starting point of 12/2020.

Yet at present, this breakout of former highs just occurred in the last week, and goes a long way towards showing why the housing market in 2023 has experienced limited supply. 

Investors likely have hesitated in selling their homes with mortgages approximating 3% if the current rates are more than double.   This will be something to keep a close eye on in the months to come.