Expecting temporary lows next week in Equities, Treasury Yields and Crypto
Technical Strategy Video:
Key Takeaways
- Pullback in US Equities, along with Cryptocurrencies, and Treasury yields getting close to initial support and expect reversal higher to begin Monday-Wednesday of next week. One can’t rule out one final flush for Equities, but should be right to buy weakness in SPX at 4418-4465 area if reached.
- Value Line Geo.Avg has reached the lowest levels since March and shows how broad-based this selling has been for the market, much more than a 5% SPX decline suggests
- Sentiment has turned bearish, and some minor evidence of a pick-up in Downside volume vs Upside. This is an initial sign of markets getting close to support.
Friday’s pullback tested Wednesday’s lows before bouncing into the close. However, wave structure still could allow for a final pullback to 4418-SPX 4435-65 S&P Futures before a bottom is in. The real key will be watching the structure of the first move off the lows for evidence of impulsive Elliott-wave structure and broad-based participation. For now, US equities look close, but can’t rule out some “final” weakness into Monday/Tuesday before a bounce gets underway.
Despite SPX and NDX being down just 5%, the broader market has deteriorated much more.
SPX might seem oversold given “Percentage of Stocks above 20-day moving average (m.a.) dipping below 20%. Yet, RSI remains in the low 40’s, not even as oversold as late Sept 2021
Percentage of Stocks above 200-day m.a. has dipped down to the low 50’s, which might seem odd given SPX down just 5% off all-time highs. This speaks to the degree of technical damage
Nasdaq Percentage of stocks at new 52-week lows has spiked above 12% as of Thursday’s readings, the highest levels of the year. Thus, this decline has been more damaging than the February, May or September 2021 declines.
Flight to Defensive sectors needs to be watched as this showed some evidence of kicking into gear on Friday 12/3. However, this has been largely lacking in recent months
Sentiment now getting bearish when eyeing AAII data, and Fear and Greed polls. Yet no evidence of capitulation just yet, and Equity Put/call ratio is at a tame .62, not over 1.00
Key to note that all of the major S&P Sectors that moved to new highs in October/November reversed sharply lower and have proven to be false breakouts. This includes Discretionary, Materials, Industrials, Financials along with Small-cap IWM, Mid-cap MDY and other areas like Retailing XRT, which broke a giant multi-month base and then promptly reversed lower.
Value Line Geometric Average shows how the broader market (Measured by 1700 Equal-weighted names) experienced a false breakout and now is back down at crucial make-or-break levels near Summer lows.
Bottom line, Elliott-wave structure, short-term cycles, Sentiment and DeMark indicators all seem to line up in suggesting lows should be close and could materialize early next week and this should be the case in Equities, Cryptocurrencies and also Treasury yields.
Treasury yield reversal looks near, and should happen next week.
US10-Year Treasury yields have broken former lows from November and have nearly arrived at a 1.382 Fibonacci projection of the first pullback in yields from October.
Areas at 1.31, with a maximum of 1.284%, look to be areas early next week to sell Treasuries in expecting yields reverse back higher and challenge and take out last month’s peaks.
The structure and Wave structure of this recent yield decline represents an ABC type correction from October and should be nearing completion this week. While many are scratching their heads as to why the yield curve is flattening so dramatically without a single Rate hike thus far, this should be nearing conclusion.
Overall, it’s right to bet on Yields turning back up. Owning the Financials here makes sense, particularly Regional Banks (KRE) make sense, as well as taking profits on TLT and considering betting on yields to rise with ETF’s like TBT and/or TMV. I expect these are all bottoming this coming week
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