A bounce looks to be underway, given Tuesday’s prices lifting up to multi-day highs and closing near highs of the session. While this might seem overdue given the extent of recent weakness, it’s tough to make much of this as being any kind of serious low, and technically I expect resistance to come in Wednesday-Friday at 3850-3975 before prices turn back down for a possible final challenge, and break to new lows into next week. Treasuries and the US Dollar look to be starting to stabilize and pushing back higher this week, and it’s difficult to expect that recent positive correlation to Equities has been broken. For trading purposes, it should be right to sell into rallies this week. However, investors will want to wait for a retest and possible break of last week’s lows into next week before considering buying dips. Given wave structure, DeMark exhaustion and cycles all possibly converging into late Q2, this could prove to be meaningful at a time when many have given up with trying to find lows before proof of a recession has arrived. My thinking is that lows should materialize when no one expects them.
Yields have held initial support; push back to highs likely into late June before peak and larger rollover
One thing which should prove important to watch carefully is the extent to which Equities continue or break their recent positive correlation with the Treasury market along with moving opposite of the direction of the US Dollar.
Most of the decline this year in Equities coincided with a rapid run-up in the Dollar along with a time when Treasury yields were largely rallying. (One remembers that back in 2000-1. along with 2008 and 2014, we also saw the US Dollar rallying sharply as Equities slumped, yet the Treasury markets’ correlation with Equities was not nearly as strong)
Overall, I am expecting that last week’s Treasury rally (slide in yields) has gotten to initial support. The wave structure of this decline looks clearly corrective and could allow for a final push back to new highs into end of June. The US Dollar is nearing a similar time where this might find a peak in July after the second 0.75 bp FOMC rate hike has been completed.
It’s thought that a rolling over in US Dollar and also Treasury yields from July-September should be something which coincides with a more meaningful rally in US Equities. At present, this looks a bit premature, and a push back to monthly highs looks likely in the near-term for both DXY and also for TNX and TYX.
Rollover in yields next month should be good news for homebuilders
In the last week, we’ve seen homebuilder stocks retrace more than 50% of their rally from March 2020. Existing home sales data came in Tuesday at 5.41m, the fourth straight month of decline. Lumber prices have now begun to stabilize following a nearly complete round-trip of their former rally from last August and, since peaking out in March over $1350, have dropped to back under $600 as of last week.
Overall, this decline in the S&P Homebuilders ETF (XHB 2.15% ) has certainly gotten stretched to the downside following its near 40% decline in the last six months. However, a bit more weakness still looks likely before this reaches support to buy.
Technically speaking, one can make the case that $48-49 is likely a very good area of support based on the following reasons: first, this lines up with prior peaks from February 2020, and is the first retest of this level on the downside after having been broken; second, this would constitute a Fibonacci-based 61.8% retracement of this entire low to high range from March 2020. Finally, it’s important to relay that DeMark-based exhaustion could materialize in as little as four weeks on further weakness.
Thus, at a time when yields might make a larger rollover next month, XHB is likely to bottom out and reverse course. One should look to buy technically at $48-49.
Bitcoin has made “a bottom” but probably not “the bottom”
Bitcoin has shown some much-needed stabilization Tuesday after having fallen to the most oversold levels on weekly charts since 2011. Interestingly enough, the 18,956 close on 6/18 fell right near a 38.2% absolute retracement from the late March peaks and a 61.8% absolute retracement from the late May peaks.
As discussed last week, many cryptocurrencies were thought to have a chance at bottoming in the short run given two equal declines in time (from late November to January equaling the late March-June decline) However, this bounce is mirroring that which is being seen in the NASDAQ and many global equity indices to kick off this new week and looks to extend further in the short run. Upside targets should materialize near 23.3k with a max near 24.8k before prices pull back to likely challenge lows into the final week of June. DeMark exhaustion indicators like TD Sequential and TD Combo have shown their first alignment of daily and weekly “13 Countdown” buy signals in unison since mid-November 2021, indicating that the downside volatility of late should be nearing at least a temporary reprieve.
Ironically, the timing of Proshares Short Bitcoin ETF “BITI -0.98% ” might arrive near a time of a larger low for Bitcoin, not dissimilar from the timing of “BITO 1.20% ”, the long Bitcoin futures ETF which was unveiled near last year’s peak. Wave structure from late May could allow for a final break to new lows into late June, but pullbacks should be buyable technically, expecting that intermediate-term lows should be near and 12,500-13,500 stands out as important if/when last week’s low close of $18,956 is breached.
