Equities & Treasury yields remain near key levels ahead of Economic data

US Equity indices and Treasury yields lie near key resistance which will make this week’s economic data increasingly important for evidence to support follow-through and/or reversal.  Equities have been consistently trending higher of late on “bad” news which causes yields to retreat, while pushing higher on better than expected economic news.

S&P’s rally from 8/18 lows remains intact, but is also part of an ongoing downtrend from 7/27 peaks.  This churning has created a difficult technical roadmap, as daily and weekly momentum remain negatively sloped, while monthly momentum is still positive. (All based on MACD)

This choppiness in US Equities over the last six weeks has seen seven sectors underperform the Equal-weighted S&P 500:   Staples, Healthcare, Discretionary, Communication Services, Financials, Industrials, and Materials.

Each of the sectors above has been lower by more than 3% on a rolling one-month basis in Equal-weighted terms.  

Yet, Technology has performed much better, which has largely been due to Semiconductors and Software, as opposed to Large-Cap Technology strength.  However, it’s important to reiterate that only Energy and Technology have been higher over the last month, and all other nine of the Equal-weighted major S&P sectors are lower, performance-wise.

Overall, I feel that US Equity markets should likely show their hand this week after recent churning.  Economic data such as CPI, Retail Sales, Jobless Claims Hourly/Weekly Earnings data will all be released this week.   It’s thought that weaker than expected data could be instrumental for causing Treasury yields to fall, and vice-versa.

Until there’s a strong breakout in either direction, the trend over the past month has been neutral, not bullish nor bearish.  However, breaks of either 4541 to the upside, or 4430 to the downside, should be important.

Technically speaking, I am taking a near-term defensive stance given the downward sloping nature of S&P Cycles this month along with the resilience in Treasury yields which are very close to breaking out to new monthly highs.  However, the ability of Technology to have held up, along with lack of defensive outperformance are certainly positives.

This week’s critical areas technically lie at the following levels: (I’ll list SPX index levels, not S&P Futures as some might not have access to this data)

Support           4430, 4335, 4260

Resistance-      4541, 4600

The hourly S&P Futures chart shows prices having pushed higher to test last Friday’s peaks near 4477.  This should prove important, and as stated above, the area for S&P which I consider to be important resistance lies at 4541.

2-year Yield Triangle could be broken this week

Not only Equities are churning near key levels.   Treasury yields are also hovering in consolidation patterns that likely should be resolved by some kind of breakout this week, with the current evidence still supporting higher yields in the near-term.

US 2-Year Treasury Notes have a pattern of lower highs and higher lows since late August, and it’s likely that 5.05% resistance could be exceeded, or 4.90% support could be breached.

Either one of those levels, when broken, should lead to follow-through this week.

For those eyeing US 10-year Treasury yields the key level here will be prior highs at 4.367%

Gann’s Mass Pressure Index shows an upward bias for this year;  However, the Back half of 2023 looks choppy

It’s time to revisit Gann’s Mass Pressure index, which represents an overlay of several important prior years combined into one composite.  (Normally in the past I have utilized 10, 20, 30, 40, 60, 80 years)

Some years this composite can prove quite prescient, while other years it doesn’t work as well.

As shown below, the period from July into mid-August did correctly show consolidation ahead of a rally into the 2^nd week of September.

At present, this composite shows the potential for weakness over the next week ahead of a large rally into early October.

This is followed by weakness into October expiration ahead of a push back up into November.

However, it’s important to note that this composite presents a far more optimistic projection for prices into end of year than my Composite from last week.

At present, with 3-4 daily cycle projections showing a bottom happening anytime from September expiration into mid-November, it’s difficult to trust any one of these, as 2023 looks like a more difficult period overall for rising rates this Fall ahead of a reversal into 2024.

Meanwhile, weekly cycles show a consistently bullish outlook for the back half of 2023 until December, and then bottom out early in 2024 and push higher.

Overall, given the correlation between Treasuries and Equities, the path for Treasury yields could be important for Equities in the weeks to come. 

Any spike back to new highs in Treasury yields across the curve would likely result in Equities weakening in the short run.  However, as has been mentioned over the last few weeks, both US Dollar and Treasury yields are growing closer to areas in price and time where they reverse back lower.  At present, one cannot say with conviction that this time has already arrived.

Thus, the next few weeks have a lot of importance towards clearing up this uncertainty, and it might very well depend on the strength or weakness in upcoming Economic data, and how Treasuries respond.   Bottom line, this Mass Pressure index seems to project a more optimistic tone for the back half of 2023.

Gold and Silver stocks typically have a sub-par September

The last 10 years of performance for Gold and Silver stocks paints a different picture than the normal seasonality which most associate with precious metals.

As shown below, September tends to be the worst month seasonally for gold and Silver stocks over the last 10 years, with an average return of (-6.46%) (XAU -Philadelphia Gold and Silver index).

This is certainly skewed a bit more negative given the huge underperformance in 2014.  However, 8 of the last 10 Septembers have proven negative for Gold and Silver Mining stocks.

Until there is more proof of Real rates starting to roll over, September very well might prove to be sub-par in the final three weeks of September. 

Note that September 2023 has already shown a negative performance of -2.53% after just six trading days of performance.  However, no evidence of counter-trend exhaustion is present on a daily nor weekly basis just yet utilizing DeMark indicators.

A firm break of 4.05% in TNX along with a violation of multi-week lows in the US Dollar would likely prove to be a positive catalyst for gold, silver and precious metals mining stocks.  At present, this still looks a bit premature.

Overall, I am expecting that the final three months should be bullish for Mining stocks.  For now, it’s important to pay close attention to Treasury yields, and to Real Rates in particular.