US Equity index gains on the heels of DXY, TNX rally is worth watching

SPX and NASDAQ look to have found minor stabilization near August lows, and an oversold bounce looks likely this week.  US Dollar and Treasury Yields have reached upside levels which bear watching carefully for any evidence of an About-face

US Equity indices look close to bottoming and attempting their first meaningful bounce attempt off the lows, which likely gets underway this week.  Monday’s push higher in Yields and US Dollar resulted in an unusual rally by Equities, and this proved to be one of the more interesting developments for Monday given recent correlation trends.

However, given the extent of the poor near-term momentum and breadth coupled with ongoing bearish structure over the last week and since July 27^th intra-day peaks, much needs to be accomplished before expecting Equities have reached their Fall bottom.

Near-term, I’m expecting that SPX could rally 75-100 points this week ahead of an End-of-Quarter stalling out and trend reversal.

While SPY has officially broken prior August lows, daily charts show the DeMark exhaustion count on an 8 for its possible TD Buy Setup signal which could be in place by Tuesday 9/25.  Furthermore, price has reached the 38.2% Fibonacci retracement of the rally into late July.  Finally, Technology sector ETF’s have not broken down and remain over August lows.

Overall, the risk/reward looks good for a bounce this week.  However, I’m very uncertain that SPX will exceed 4460, and anywhere from 4425-4460 should represent strong resistance on a bounce.  SPY should find resistance near 444, but any move above 441 should be watched carefully for evidence of stalling out this week.

US Dollar has reached Spring 2023 peaks, which could prove important

DXY has finally gotten to $106, a level discussed in recent weeks as having importance for possible resistance to this rally.

While trends remain quite bullish and linear since July lows, the next week could prove important from a time perspective as to why DXY might stall out and reverse back lower.

DeMark exhaustion is present on daily and weekly DXY charts along with EURUSD, GBPUSD and USDJPY.  Elliott-wave patterns also show this recent advance to be the final push up off July lows.

Bloomberg Dollar index (BBDXY) has officially reached March peaks, and it’s thought that 1260-3 is initially important, with additional levels found at 1279, an important 50% retracement zone.

If/when US Dollar reverses to close at a four-day low close, this would be important in confirming that the Dollar has peaked.  At present, there is no evidence of this yet.  However, I’m skeptical that it’s right to get bullish on DXY at current levels, and do not have much confidence that a breakout above March 2023 peaks in DXY or BBDXY can be given that much confidence.

EUR/USD likely will bottom out into end of Quarter

Interestingly enough, with ample signs of DeMark based exhaustion and Elliott formations suggesting Dollar strength might not continue, it’s important that weekly charts of Euro and Pound Sterling show equal, but opposite signals.

Euro’s decline looks to be close to bottoming, and I do not expect EURUSD undercuts 1.05, which should make the risk/reward compelling for the Euro over the next week on any further drawdown.

Daily and weekly DeMark exhaustion are now present and additional “13 Countdown Buys” would be present over the next 3-5 days on signs of EURUSD undercutting 1.0550.

Pound Sterling along with Japanese Yen also show similar signals on their respective charts on a daily basis (and weekly on GBPUSD)

Thus, it helps to add confidence to the idea of a Dollar peak if Euro and Sterling both show evidence that a possible bottom is near.

While trends remain quite negative for Euro, Sterling and Yen, it will be important to keep alert for any evidence of reversing the current downtrends over the next two weeks.

Gold and Silver still haven’t bottomed, but would be attractive on weakness into October

Overall, it’s difficult having a positive opinion on precious metals given the ongoing sideways trends in recent months coupled with the rapid rise in Real rates to new 2023 highs.

Most patterns in precious metals like Gold suggest that declines from Spring 2023 peaks should be in their latter stages.

One can argue that metals have actually held up fairly resiliently in the wake of the dramatic spike in real rates, and this is certainly viewed as a technical positive.

Bottom line, I suspect that Monday’s big spike upwards in yields should result in a final push back to monthly lows in Gold and Silver.  Yet, given that Treasury yields and the US Dollar look close to peaking out technically, this might serve as an attractive counter-trend opportunity to give the precious metals a more serious look.

While September has proven negative for Gold in the majority of Septembers over the last 10 years, October is far more positive.

My technical target for Gold is 1865-77 initially and breaks of 1865 could lead to 1850.  This should be an important area at the 50% retracement zone, which should make Gold an appealing risk/reward.  Conversely, if Gold were to climb back over $1960, this would make it likely that lows are already in place.  However, it’s still premature to make this call technically.

I’m watching for another breakdown in Gold in the next 1-2 weeks.  However, on this occasion, it should be right to consider Gold to be close to bottoming, despite what appears like an ongoing bearish trend.  The next 2-3 weeks should serve to answer the question as to a possible bottoming out in Gold.  Stay tuned.