Key Takeaways
- Monday’s decline brings prices closer to trading support at 50% retracement levels
- Treasury yields likely push higher to 3.00-3.25% in TNX into May
- Crude Oil’s decline looks temporary only and should lead to buying opportunities
The pullback in S&P has now produced losses in six of the last nine trading sessions, with prices approaching the 50% retracement level of its rally off of mid-March lows. Overall, nothing has changed in my thesis. Near-term, I am expecting a trading low to develop, and for prices to push higher into April expiration. Three reasons look important in this regard: First, DeMark exhaustion is close to lining up on a few different timeframes. Second, my cycle composite shows an upward slope over the next 1-2 weeks before fading. Third, 50% retracements often are important to consider as support, particularly when sector performance showed four sectors positive in Monday’s session: Staples, Industrials, Materials, and Discretionary. Thus, this pullback looks to be nearing an important spot for near-term tactical trading opportunities, and I expect a trading low to develop above 4380 up to 4415 for SPX.
Treasury Yields still pushing higher- Strong momentum but still tough to call for an intermediate-term Treasury decline
The weakness in Treasuries has proven substantial, with ^TNX now having risen more than 100 basis points (b.p.) since the start of March, roughly six weeks ago. Near-term, yields are extended and look to potentially make a minor peak this week based on counter-trend indicators which show trend exhaustion. However, I feel any pullback in yields will prove temporary at this time before pushing even higher in the weeks ahead.
Monthly charts of TNX going back nearly 30 years since the early 1990’s show a couple different breakout attempts of this lengthy downtrend which have failed, most notably 2007 as well as late 2017-8. Note, on both occasions, yields successfully exceeded the long-term downtrend at the time, but ultimately failed and reversed course, proving the breakouts to have been false.
Overall, a gradual bottoming out in yields does look to be happening. Yet, cycles, DeMark indicators and prior highs from 2018 suggest that 3.25% should be a ceiling for yields into May. Furthermore, any spike in US 10-year yields above the psychologically important 3% level would likely turn sentiment very bearish towards Treasuries (with many expecting yields to go up meaningfully. ) This in turn should provide one of the best buying opportunities of the year for Treasuries likely in the month of May.
Bottom line, I am expecting that yields rise for another month and then should peak out for 2022. Near-term though, my prior thoughts last month about an April yield peak looks premature and it still looks difficult to fade this move. May should bring opportunities most likely for those that care and I feel that TLT should be a compelling technical buy idea at $112-$115 in price.
To shed some further light as to why May might be significant, I’ve enclosed the weekly Symbolik chart for TNX below. As one can see, the current TD Combo and Sequential counts remain early by 3-5 weeks. Thus, despite daily signals showing possible exhaustion this week, I feel technically that it’s still quite early to expect a meaningful peak in April. Bottom line, while there should be a strong trend reversal, it looks early for now, but I’ll continue to monitor in the weeks ahead, if/when TNX gets to 3.00% or just above.
Crude weakness doesn’t look too meaningful in thinking a larger WTI peak is in place
Most of the media pundits discussed Monday why COVID-19 inspired lockdowns in China should hurt demand in the World’s Number 1 Energy importer as this eventually could take a toll on growth.
Technically speaking, however, I don’t see much negative about this price pullback for anything longer than a few weeks’ time, and this recent technical damage looks innocuous, and likely proves short-lived. First, the Elliott-wave structure remains short-term negative, though overwhelmingly positive on weekly charts, with the decline from early March representing the start of a giant ABC-type corrective wave, which should be complete by May.
Second, while near-term price weakness has occurred, this really hasn’t proven to be intermediate-term in nature (That would require a break under $85, which I don’t expect anytime in the next few weeks/months.
Third, while CFTC sentiment data rose to extreme levels last month, there wasn’t a similar move in positioning and flows. It’s been widely reported that open interest has dropped off sharply in recent weeks as Futures backwardation has lessened with Spot WTI Crude having pulled back sharply while Supply/demand imbalances are likely to persist.
Near-term, technically speaking, prices have undercut mid-March lows intra-day, which suggests there could be a possibility of seeing prices eventually stretch down to $85-$87 before stabilizing. However, this Crude weakness really hasn’t been important in causing much, if any damage in technically favorable ETF’s like OIH which still lie in larger triangle patterns.
As discussed last month, larger cycles for WTI should trend higher into Summer 2023 before any meaningful peak, and I suspect this likely means that inflation shouldn’t subside as quickly as some believe, but eventually should prove transitory and pull back.
Twitter-(TWTR) Is this stock a “Buy” or a “Sell” now that Musk has decided not to join Twitter’s Board of Directors?
While rumors are rampant as to what Musk’s true intentions might be, or the SEC’s rulings on the next chapter of Musk’s tweets and rapid moves, the stock has gotten more attractive technically speaking on low volume pullbacks in recent days. Interestingly enough, TWTR spiked right up to its 200-day moving average (m.a.) before pulling back into this week.
As seen, TWTR’s rally on the Musk TWTR buy managed to exceed prior lows from May 2021 which makes this likely to eventually rally back to new high territory from an Elliott-wave perspective (Making the entire decline from last February simply a corrective pattern) Volume spiked sharply on last week’s announcement but has waned and is trading at far lowest levels on this pullback. Technically speaking, a good rule-of-thumb is that sharp rallies on heavy gains likely can prove to be attractive risk-reward opportunities on weakness on lesser volume.
Overall, I find TWTR quite attractive to buy on any revisiting of this prior pivot from where it broke out (near $41). If this fills the gap, this should find meaningful support and turn higher. The larger intermediate-term pattern is already in “Base-Building” mode following its 2/2021 test of 2014 peaks before pulling back, and I feel technically that this is a very interesting long-term buy and hold candidate, for those who have the patience.
Bottom line, I like using recent weakness to buy TWTR technically, and the best area of risk/reward attractiveness lies at $41-$44. In the event TWTR makes a weekly close back above $51.64, this likely means its pullback is complete and should drive TWTR to the mid-to-high $50’s. ( I do not have a TWTR position at this time)
