US Equity indices have been trending lower as Treasury yields have pushed higher this week. SPX and QQQ might not break August lows right away, however, and technically there could be a low that happens into end of week. At present, trends and momentum are short-term negative, but should be nearing support.
Wednesday’s post FOMC release comments by Powell cemented in place the “higher for longer” mentality, and despite the Federal Reserve leaving rates unchanged, the “Hawkish Pause” that had been anticipated by markets resulted in Two-Year Treasury Note Yields breaking out to the highest levels in over 15 years.
As discussed yesterday, despite the Treasury decline being seemingly in its latter stages, there DeMark exhaustion remains premature to signal exhaustion. Thus, a larger stalling out/rollover in yields might require another 2-3 weeks. At present, yields are pushing higher.
Overall, I suspect that SPX and QQQ might find it difficult to immediately break down under August lows, and any SPX weakness down under 4400 likely creates an attractive Risk-reward into end of quarter.
Bottom line, while there’s no specific technical proof just yet that markets are bottoming, the next 2-3 days should provide some evidence of SPX trying to stabilize. This could materialize based on Technology having pulled back to technical support near August lows, along with cycles starting to turn back higher into October.
At present, I’m not expecting a break of SPX-4335, and feel that recent weakness likely finds support and turns back higher. Daily close back above SPX-4430 should give the first evidence that a larger bounce could be getting underway. Support on Thursday/Friday could materialize at SPX-4350-4365.
Performance tends to be very negative this week
Looking back since 1928, it does appear like this week of September following expiration tends to be one of the worst performing weeks of performance of the year.
The performance of the week following Expiration Friday in September has averaged -0.8%, with just a 36% win rate.
This is fairly bearish seasonality for this week, but certainly makes sense given how strong Treasury yields have been lately, along with a minor backing off in Technology.
Two-Year yields break out to new 2023 highs, leading to Curve flattening
While the FOMC did not raise rates on Wednesday, the Fed projections of less easing for 2024 resulted in Treasury yields spiking up across the curve. Fed officials now expect it will be appropriate to reduce Federal Funds rate to 5.1% by the end of 2024, up from 4.6% when projections were last updated in June.
While Fed fund futures don’t seem to suggest that traders are buying into this hawkishness just yet, the end result in the 2-year yield spiking up above 5.10% seems important for this week.
Overall, the big question is whether Equities can buck the tide and begin to rally in absence of a rolling over in Treasury yields.
Technology weakens to area just above August lows
This hourly chart of the SPDR S&P Technology ETF, (XLK 1.01% ) shows the recent downtrend that’s been intact for Technology since early September. While this should prove short-lived, it does not seem complete as of Wednesday’s close.
Interestingly enough, Equal-weighted Technology fared far better than XLK in trading, but XLK could likely find support near August lows into end of week.
Until this downtrend line is broken, it will be difficult to be too positive on XLK. However, this looks to be an excellent risk/reward at 164-165.
