Key Takeaways
- Monday’s break of May lows is a structural negative in Equities, TY, Cryptocurrencies
- Treasury yields pushing up to yearly highs along with US Dollar important
- Short-term capitulation in volume with huge negative A/D bias
The sudden break of May lows across Equities, Treasuries and Cryptocurrencies means that a long-lasting bottom will now be likely postponed until late June. While many in the Media are discussing a “new” bear market for SPX, many of us realize that this has been in place for some time now given more than 60% of issues are already down more than 20% off 52-week highs. Important to note that numerous divergences should be forming now that are encouraging, regarding percentage of stocks hitting new lows being far less than May, and momentum being at higher levels than last month, which are all constructive. Meanwhile, more than 90% of all SPX issues are now below their respective 50-day moving averages. This weekly chart shows the prior Fibonacci retracement levels having held in January and May, and Monday’s breakdown puts the 50% retracement area (not a Fibonacci, but important) now firmly in focus. Overall, it’s right to look at 3500-3600 as being very much possible now that 3810 has been broken.
SPX cycle likely will bottom out in late June with July retest before turning up into September
While there were numerous reasons to think markets very well might be bottoming on 5/20/22, this cycle projection by the Mass Pressure index showed SPX bottoming on or near 6/24, near the final week of Q2. (My other cycle composite by the Foundation for the Study of Cycles also bottoms in about three weeks during this same timeframe)
Given that more than 60% of all SPX issues are now down more than 20% from 52-week highs, and more than 90% of SPX names are below their respective 50-day moving averages, I think it’s likely that many issues have already been sold down to quite oversold levels. Thus, I believe that markets are close to bottoming, but yet the lack of any real stabilization (combined with cyclical projections suggesting late June) means that any minor bounce for now into FOMC or directly after likely will prove temporary.
To the bulls’ credit, there was massive downside volume on Monday, with nearly all the volume to the downside and TRIN readings over 2.75 (Arms index). Normally, readings like these mean it’s close to a short-term low. However, true stabilization takes time, and with a bearish structural breakdown in risk assets, with no weekly DeMark signals in place, the break of May lows means it’s likely early for anything more than just a trading bounce into/after FOMC.
Below is the Mass Pressure index showing a bottom into late June. Given that this cycle has proven accurate all year, and my thinking of May lows holding has proven incorrect, it’s right to step aside until more evidence is there about a more sustainable low. This has to do not only with cycles, but in a drying up in selling, positive momentum divergences, DeMark exhaustion and Elliott targets being reached, which for now are largely absent.
Treasury yields breaking out across the board
It was discussed last week that Treasury weakness (strength in Yields) had directly coincided with the weakness in Equities, and the US Dollar’s turn back higher in June also looks important as a negative headwind for Equities.
Daily charts of the CBOE US 10-Year Treasury yield index (^TNX -0.82% ) have now jumped to the highest levels since 2011, over a decade ago. Furthermore, this decisively breaks the long-term TNX chart going back since the mid-90’s (not shown) .
Overall, my work shows yields close to peaking and I believe this will happen sometime in June which, given the negative correlation with Equities, means that stocks and bonds likely bottom in unison within the next few weeks. However, it appears like a very serious breakout, and even on a multi-month pullback in yields from July-September, I feel that further upside is probably likely in the back half of the year at some point.
For now, weekly exhaustion indicators on both TYX and ^TNX -0.82% show there to be possibly two more weeks before “13 Countdown signals” appear, which coincidentally, would also line up with Gann’s Mass Pressure index bottoming for SPX. My comments on buying into TLT remain very much actionable for those with 3-5 months or greater in time horizon. However, near-term, this hasn’t shown any evidence of working just yet.
Bitcoin breakdown also worth monitoring
Bitcoin’s drop under May lows of $25,401 likely leads down to near 20k before finding much support. This level lines up with former peaks from late 2017 ($19,666) along with a meaningful intermediate-term trend from the 2015 bottom. Monday’s downside volatility is directly coinciding with a similar move in US Equity indices which have broken May lows, making a bottoming process still elusive.
Weekly RSI shows momentum having fallen to the lowest oversold levels since 2015 while monthly RSI has now dropped to the low 40’s. Overall, it’s important to recognize that this seven-month decline in BTCUSD remains part of a larger uptrend. Therefore, no matter how severe this pullback seems, it should still be right to buy into this weakness when prices arrive at its seven-year uptrend. DeMark indicators show weekly TD Combo and TD Sequential might line up with “13 Countdown” signals into late June on weekly charts, while monthly TD Buy Setups could possibly show “8 counts” by early July.
Bottom line, breakdowns of monthly lows rarely coincide with meaningful lows right away, but prices are getting closer to intermediate-term levels of support which suggest buying dips should be correct by the end of Q2.
