SPX, QQQ bounce to near resistance & Yields do not look to have peaked
- SPX, QQQ bounce has not yet broken downtrend; Weakness possible this week
- Treasury yields pushed up above October 2022 peaks but stocks largely ignored
- Downtrends still intact and yields having not peaked suggests bounce could fail
US Equity markets still likely could make final downside push to 4300-4330, as trends remain negative and yields have not yet peaked. However, risk/reward for being short is starting to become sub-par given the pullback to near oversold levels while breadth has neared levels near where Equities bottomed in March
US Equity indices haven’t yet given conclusive evidence of lows being at hand based on DeMark indicators along with Elliott wave patterns still suggesting a further mild decline could happen this week.
While compressed market breadth, near oversold conditions and a contraction in bullish sentiment are all constructive signs, there hasn’t yet been sufficient strength to break out above existing downtrends.
Technically, similar to interest rates largely ignoring cycles, sentiment, and trends pushing further into overbought territory, Equities very well could do the same on the downside before bottoming out into the end of August.
It’s not clear to me that cycles have to turn up this week ahead of Jackson Hole. However, the 80-day SPX cycle shows a pronounced bounce starting into September, and I’m expecting that’s not too far off.
At present, as the charts below of SPX and then QQQ illustrate, it’s imperative that these downtrends are broken to have faith that this decline is giving way to a period of stabilization and eventual rally.
When momentum begins to reflect a bearish downtrend, with MACD being negatively sloped without RSI having gotten oversold, nor showing positive momentum divergence of any sort, it’s normally correct to expect bounces like what SPX has produced since last Friday’s lows to prove short-lived.
If SPX-4440 is exceeded, this would represent the first test of this bounce, followed by the ability to recoup 4471, near the 50% retracement level of this three-week decline. Failure to achieve that progress which is followed by a move to undercut Monday’s 4360 low likely would allow for price to enter the important 4300—4330 area which should provide support.
QQQ bounce also looks to have risen to challenge important downtrend line resistance
Hourly QQQ charts below show why it might be a bit premature to celebrate Monday’s gains.
Price lies right near the edge of this ongoing downtrend, which shows the linear progression lower from late July.
Until QQQ can regain 365 at a minimum, trends remain bearish near-term, and exceeding 365 is the first step towards thinking prices are bottoming. The next level above this is 371.
While it might seem like a lot of progress needs to happen before one turns bullish, that’s normally the correct way to make certain that a bounce can extend vs. just proving short-lived and then revisiting recent lows.
In this case, momentum has nearly gotten overbought with prices up to existing downtrend. Weekly momentum, meanwhile, has turned negative given the bearish crossover over the last two weeks and DeMark counts are premature to show downside exhaustion by roughly one week.
Overall, there should be opportunity if/when price revisits 349 for QQQ. At present, more is necessary before having conviction about prices having bottomed.
Consumer Staples ETF has pulled back to the lowest levels since last Fall
Interestingly enough, there’s been precious little evidence of any defensive strength since this US Equity decline got underway a bit more than three weeks ago.
Consumer Staples, shown below, has weakened in absolute terms to the lowest levels since last October 2022.
Relative charts have held 2023 lows at present, when eyeing Equal-weighted Consumer Staples vs Equal-weighted SPX.
However, the defensive groups remain under pressure. Some of this weakness can be attributed to the yield sensitive groups underperforming as Treasury yields rise. Yet, it remains a constructive signal when risk-on groups like Industrials or Technology are faring better than groups like Consumer Staples (shown below).
Daily charts of Invesco’s Equal-weighted Consumer Staples ETF (RSPS -1.34% ) has now broken down to new lows for 2023.
TLT still early to bottom despite revisiting last October lows
TLT has now pulled back to within striking distance of last year’s lows.
As daily Symbolik charts show below, counter-trend exhaustion measures for daily TLT (IShares 20-Year + Treasury Bond ETF) still shows 4-5 more trading days which must elapse at a minimum before DeMark-based exhaustion will show up.
While not specifically necessary to see a signal like this (TD Combo or TD Sequential “13 Countdown”) it would substantially raise the odds that a meaningful low could be in place, in my view.
Additionally, weekly and monthly charts also look to be late in their counts and are within 2 weeks (on Weekly) and 2 months (on Monthly ) before these also register downside exhaustion on their respective timeframes.
Bottom line, I’m expecting a low in Treasuries (high in yields) by end of month. While traditional technicals might appear bullish for yields, the preponderance of factors like Elliott-wave, sentiment, seasonality and DeMark exhaustion shows that this recent bounce in yields should be nearing conclusion.
