The failure of ^SPX 0.91% to turn up immediately is a bit disconcerting given my short-term Cycle projection into mid-September, and it’s looking increasingly likely that this cycle will now invert and produce a low in stocks into 9/14, not a high. My 3920-5 area of importance was breached on a close Tuesday, yet still no major weakness thus far, despite the downtrend being stubbornly persistent. Sentiment, breadth gauges and Elliott wave structure are all suggestive of an upcoming low, while current technical trends along with cycles remain biased towards more volatility. Overall, maybe the most important piece of the puzzle lies with Treasury yields pushing higher, and this remains important to keep an eye on given the negative correlation with stocks. As I’ll discuss later in this report, yields look closer to peaking out in the near-term with TYX and UK Gilt 10-year yields at the highest levels in eight years. Hourly charts below show the current breakdown of this ^SPX 0.91% decline, with this push to new lows likely being closer to a low, not something to chase. Overall, I will hold longs into 9/15 and buy dips into next week.
Breakout in long-term yields not likely to extend
Tuesday brought about breakouts in long-term US Treasuries as well as UK 10-Year Gilts to the highest levels since 2014, over eight years ago.
^TNX 1.14% rose to near June peaks and is getting closer to areas which should result in an upcoming reversal in trend.
I expect that potentially as early as 9/14-9/15, Treasuries likely bottom out / Treasury yields peak. This is based on three-month cycles from former June peaks which should now pinpoint an upcoming top.
Elliott-wave structure shows this yield rally running out of steam in the next 3-5 trading days and beginning a big turn back lower.
DeMark counter-trend indicators such as TD Sequential and TD Combo could possibly align on ^TNX 1.14% daily charts within the next three trading sessions, directly lining up with the 90-day cycle.
My cycle composite on both TYX and ^TNX 1.14% both start to turn down sharply and trend down into at least the end of 2022 with intermediate-term cycles lasting until Fall 2023. This supports buying the recent dip in Treasuries and/or adding duration
Treasury Yield cycles suggest the path of least resistance is lower, not higher
Weekly cycle composites of ^TNX 1.14% which have correctly pinpointed most of the major highs and lows in yields since 2007 point lower in yields into 2023.
This composite suggests that yields should be closer to turning back lower, despite if yields look to be making technical breakouts back to new monthly highs.
If current negative correlation holds with SPX, this goes a long way towards showing that Yields turning lower could also bring about a stock market low and rally into year-end.
Natural Gas looks to be nearing first important support on weakness
Natural Gas showed its first real signs of trend failure last week upon breaking its two-month uptrend.
It was thought that the breakout into late August likely could carry up above $10 to potentially $12, so this weakness is an unwelcome development, but does not completely cancel out this forecast.
It’s vital that Natural Gas Futures (NG -0.47% _F) hold $7.50 near prior early August lows and turn back higher right away. This would go a long way towards suggesting this rally back to new highs can still happen this Fall and not give way to weakness.
At present at $7.93, I don’t believe in selling at this point, until/unless $7.50 is broken on a weekly close. It looks right to buy this initial dip over the next 3-5 trading days, and/or watch carefully to see evidence of this either holding and turning back higher or breaking further. Under $7.50 would necessitate revisiting longs in Natural Gas.
