Key Takeaways
- Tuesday’s downside reversal nearing 50-61.8% retracement levels for SPX, QQQ.
- 10-Yr Treasury Note minus 3-month Treasuries have steepened, giving a different signal
- Bitcoin also looks to be close in bottoming; However, bounces sellable >44k into 4/18
Following a decline of seven of the last 10 trading sessions, Equities look to be close to short-term lows, and technically I’m expecting a bounce in SPY, QQQ and most importantly in IWM into April expiration and early next week. Importantly, S&P retraced a near exact 50% of its low to high range from February into late March, while QQQ, shown below, has retraced 61.8% as of Tuesday’s close. DeMark exhaustion now shows completed TD Buy Setups on Daily charts for SPY, QQQ and could be complete on IWM by Wednesday. My cycle composite turns higher between now and early next week. However, it’s looking increasingly less likely that prices push back up over March highs right away. Thus, this bounce might prove short-lived, and would be something to consider selling into on any 50-61.8% retracement bounce.
Counter-trend Exhaustion indicators also show markets to be close to short-term bottoms
When looking at DeMark’s TD Sequential and TD Combo indicators shown as an overlay on existing prices, Tuesday looked to have been important in finalizing the TD Buy Setups which had been a work in progress over the last week.
Furthermore, ratio charts of IWM -1.00% vs SPY 0.21% show this to be turning up sharply in the near-term. Overall, this points to a good likelihood of Small-caps outperforming Large-caps in the next week. Yet the broader trend remains under pressure, and it’s thought to be a near-term rally only before this turns back lower.
As has been discussed, IWM -1.00% vs SPY 0.21% confirmed TD Sequential and TD Combo exhaustion indicators on 240-minute charts which resulted in this ratio turning back up over late March lows. This is a bullish development in the short run and should allow IWM to outperform SPY into mid-to-late April. However, this is a short-term development only and doesn’t support meaningful long-term intermediate-term uptrends in Small-caps getting underway.
10-Year Minus 3-month yield curve continuing to steepen- Nowhere near inverted
While many have “come out of the woodwork” to comment on the predictive powers of the 10-Year Treasury Yield minus the 2-Year Treasury Note having inverted briefly, it’s typically wise to also consider what’s happening in the 10-Year Minus 3-Month curve.
The latter was made popular by Arturo Estrella, for one, the former NY Federal Reserve economist who’s well know for his studies on the predictive power of the yield curve. Estrella stated that an inverted yield curve between 3-month Treasury Bills and 10-year Treasury Notes had predicted all seven US recessions that have occurred since 1968.
As weekly charts of the 10-yr Minus 3-month show below, this has been steadily rising since Spring of 2020 and has recently pushed back up above 2.00%. Thus, this will be something to monitor closely in the months ahead. However, at present, it shows no real cause for concern as this has steadily pushed higher for more than two years.
The red area in this Spread chart shows the inversions and the subsequent recessions (highlighted in Grey) that have been present four-to-six quarters in the future after this inversion takes place. (Overall, this predictive power doesn’t take into consideration changes in the Term premium)
Bitcoin looks to be near a short-term Low. Yet how long can a bounce last?
Bitcoin looks attractive to buy dips after falling to test a nearly three-month trend connecting prior lows since early January. While momentum remains negatively sloped, BTCUSD has found support at this area near $39.2k, and should bounce over the next week, with upside targets at $43,750 up to $44.2k which looks like the first meaningful upside target. Given the current high positive correlation with Equities, it’s likely that this bottoming out in Equities and rally on Tuesday likely lifts the entire Crypto space between now and next week.
Overall, weekly momentum remains negatively sloped, so this is expected to be a short-term bounce only, not the start of an intermediate-term rally. Movement back above $48,248 would be necessary to expect the start of a new multi-week or multi-month rally had begun. Risk levels lie at $37,169 and cannot be broken without postponing this rally attempt. However, near-term, some stabilization and rally looks likely over the next 4-6 trading days, and BTC looks attractive from a risk/reward perspective following its pullback to the lows of this consolidation channel.
