Gold has broken out of intermediate-term downtrends while TLT nears support

SPX looks unlikely to break 4200 right away, and recent selling pressure should represent an attractive risk/reward opportunity for US risk assets.  Both US Dollar along with Treasury yields have proven stubborn in their peaking processes, but additional evidence of a peaking out is due into next week.   The improvement in Financials is a necessary tailwind for US equities at a time when sentiment is growing increasingly more bearish.  While the US stock market has proven quite narrow in recent weeks, that looks to be changing, and presents a greater tailwind to risk assets vs. an oversold Treasury market that likely could bottom out and turn higher in the near future. 

Bottom line, despite all the dysfunction in Washington coupled with the rapid increase in geopolitical risk over the past couple weeks, SPX has remained remarkably calm.  SPX is a mere six points above the close from Friday 10/6/23, two weeks ago.

The minor break of the last few days’ lows does not represent a switch to a bearish posture.  Indeed, this has taken the shape of a minor corrective pattern which is evident by the pattern from 10/12 peaks.

SPX found strong support near 4305, the 50% retracement ratio of the rally from October, and US Equities look very close to bottoming out, and technically this looks highly likely into the last two days of the week given sector improvements.

Technology, Financials, Energy and Industrials remain standout performers which have all outperformed the Equal-weighted S&P 500 over the past month.

As discussed in previous notes, the combination of bullish seasonality and short-term cycles, coupled with bearish sentiment, and some improving sector developments likely points to SPX 4200 not being immediately broken.

Any hint of the GOP Speaker being decided in the days ahead along with Powell voicing some dovish comments given the uptick in geopolitical violence while interest rates have pushed higher would likely be seen as a positive for US risk markets.

In the short run, this choppiness since 10/12 is a pattern I view as a corrective pullback following the initial push off the 10/3 lows.  I don’t anticipate that SPX weakens under 4280 and very well could be bottoming near current levels given the resilience of 4300 having held into the close.

Movement back over SPX-4401 will serve to confirm that a meaningful rally is underway.  Some might wish to wait for that move.  However, I see value here from a risk/reward perspective as I am not expecting an immediate break of 4200.

KBE and KRE are both emerging from downtrends

Following up on yesterday’s comments, daily charts of KBE, the SPDR S&P Bank ETF, show a breakout of the downtrend from July.  This is a bullish development and bodes well for Financials to rally in the months ahead.

For those that missed yesterday’s report, the Equal-weighted Financials ETF from Invesco (RSPF 0.62% ) when viewed in ratio form to Equal-weighted S&P 500 ETF (RSP 0.37% ) has confirmed DeMark related monthly TD 13 countdown exhaustion buy signals.

While results and performance of stocks like MS 0.83% , CFG 1.36% , RJF 1.00% , and USB were disappointing on Wednesday, these don’t take away from the positives of the banking sector from a technical perspective this week.

Technically I like owning Financials for 4Q and feel that pullbacks like Wednesday serve to make this sector more enticing.

TLT daily chart shows downside exhaustion possible by end of week

Let’s face it..  trying to fight the uptrend in Treasury yields has proven difficult, despite cycles, Elliott-wave patterns, sentiment and seasonality (not to mention overbought conditions) suggesting this is quite close.

There might be some relief for Bond bulls after all, however.  TLT daily charts show the possibility for TD Combo 13 countdown “buys” to materialize potentially by Friday of this week.  That would be an encouraging development that suggests the bond market is growing closer to a potential short-term low.

As I discussed last month, TLT shows monthly charts requiring a push down into November before monthly signals are triggered and then confirmed.

Cycles also show November/December as being a peak for daily Treasury yields based on my cycle composite.

Despite SPX largely holding up well as rates have pushed higher in recent weeks, DeMark daily charts show this Treasury decline (yield rise) nearing conclusion.  We’ll see. 

At present, trends in TLT are down, but look to be nearing another area of possible support, the first being near early October lows near $84.  Undercutting that would cause some positive momentum divergence and support could come in near $82.75-$83.25.

Regardless, yet again, this looks to be close.  For trend followers, it might pay to hold out for a close back above $88.50 which would exceed current October peaks in TLT and also serve to break minor downtrends. 

Gold breakout turns intermediate-term trend back to bullish

Don’t look now, but gold has risen more than 6% to a four-week high given a likely combination of escalating tensions coupled with central bank demand.

Interestingly enough, these gains have happened despite real yields also pressing higher, which historically have had strong negative correlation with gold.

Given that my technical model suggests an intermediate-term peak in Treasury yields should happen in 4Q, I suspect that Gold is rallying ahead of any upcoming Powell dovishness, and these gains also coincide directly with the uptick in Middle East tensions.

In the short-run, spot Gold now shows a completed TD Sell Setup on daily charts, which historically have been important to pay attention to for gold.

However, the breakout of the larger downtrend for Gold is meaningful, signifying that any consolidation in prices in the days to come likely make Gold quite attractive from a risk/reward perspective for a push back to new all-time highs.

Overall, I like both Gold and Silver and Mining stocks between now and Q4.  While I suspect that this recent move might require some minor consolidation, it’s right to own the precious metals and this would become a more attractive trade on any weakness in the weeks to come.