The relentless push higher in rates continues to be an important factor that’s spooking the stock market, preventing a more material bounce off the lows. These next few days will be important to ascertain the Treasury funding levels and the possibility of Powell to produce a more dovish message given that 50 bps of rate cuts have already been removed from the market. Trends remain bullish from 4/19 lows, yet some backing and filling is certainly possible if/when rates push higher in the short run before these both reverse. Pullbacks should create a very favorable risk/reward opportunity for Equities into mid-May but some relief on this recent spike in rates is thought essential for Equities to continue higher.
Tuesday’s Employment cost index “beat” was thought to be important for why rates began to shoot up dramatically in the US on Tuesday. This had a ripple effect on Equities and became more pronounced as the day wore on. ^TNX -0.96% finished at 4.686%, higher by .072 bps, while the 2-year yield finished above the psychologically important 5.00% threshold at 5.039%.
Overall, I don’t sense that rates have more to go on the upside, given current bearish positioning for Treasuries, negative cyclical projections, and a good likelihood of inflation proving short-lived again given several inconsistencies and seasonal issues with CPI in recent months. Yet, the 2-year yield very well might reach 5.15-5.20 briefly along with TNX pushing up to 4.80-5% before this bounce officially reverses course.
Importantly, tomorrow’s Fed meeting results and the Treasury refunding announcement could prove to be important catalysts for the bond market which might help to clarify Tuesday’s movement, possibly resulting in a trend reversal.
As seen below on an hourly ^SPX 0.54% chart, the minor backing and filling extended lower to fill the gap from last week. However, there was no material break of the uptrend from last Monday’s lows. SPX looks to lie right near an important minor uptrend line from last week as of Tuesday’s close.
Some evidence of trend violation will be necessary before thinking that markets might turn lower, and I’m skeptical that this happens following the earnings results post Tuesday’s close from AMZN 1.41% and AMD 4.05% .
Interest rates should be in the final stage of their rally, along with the US Dollar. Meanwhile, Technology as a sector looks to be stabilizing and turning higher following its March decline into early April.
Important levels to watch as support lies near last Thursday’s lows at SPX-4990.58. I’m skeptical that this is violated, but would have to adopt a more defensive tone in the short run if this does happen. At present, Tuesday’s pullback failed to do much damage and should be a buying opportunity for Wednesday into the all-important Fed meeting. The next 2-3 days should hold the key, but until/unless 4990 is broken, I’m inclined to think today’s pullback is buyable.
S&P 500
SPX short-term cycle shows strong gains emanating from mid-May lows and could be in place already
When refreshing my cycle composite for SPX, this seems to show weakness into mid-May before a meaningful lift higher throughout the back half of May into June and ultimately a rally into mid-August before a possible seasonal 3rd quarter correction happens into the US Election.
I tend to think the Equity market’s 4/19 bottom was important from a cyclical and technical perspective, and am not certain this needs to be revisited or broken right away.
However, a couple different cyclical projections show at least a minor backing and filling happening into mid-May near expiration, extending into 5/24.
I’m of the opinion that Equities likely rally into mid-May, and then might show consolidation into that period. However, initially, the next three days will be vitally important given the FOMC meeting, and AAPL earnings on Thursday, not to mention the Fed’s quarterly refunding announcement. I’ll be watching, with close eyes on ^SPX 0.54% 4990. Unless that’s broken, Tuesday’s pullback arguably can’t be called too important.
S&P 500 Cycle Composite
Two-Year yield looks to have some minor upside, and this might be a short-term concern for SPX
The breakout in the two-year Treasury yield is difficult to be too bearish on technically speaking.
This consolidation over the past week following a lengthy uptrend is typically bullish and looks to have yielded to an upside breakout during Tuesday’s session.
The Employment cost index came in better than expectations Tuesday at 1.2% vs. 1.0% expected, and yields promptly turned sharply higher, while Equities turned lower.
In the short run, this relationship will continue to be important to monitor. I’m not expecting that the Two-Year yield gets above last Fall’s highs. Therefore, the next couple days into the next couple weeks should be very important and ideally should mark a peak for yields.
At present, this yield chart needs to show an imminent trend reversal to have any kind of a bearish stance, as the breakout itself looks bullish in the short run, meaning that yields likely extend a bit further.
US Government Bonds 2 YR Yield
DJ Transportation Average breakdown is worth paying attention to given its leading sector tendencies
Transports broke down sharply in mid-April and abnormal strength or weakness out of this Average is always important to monitor given its tendency to be a leading sector.
In this case, the breakdown followed by failed rally attempt and subsequent drawdown is more negative than positive for Transportation stocks and should serve as a headwind for Industrials performance.
The good news is that weakness should not prove too severe, and lies directly above pretty strong support which intersects near 14250-14400.
Thus, any weakness in DJ Transports into May shouldn’t have too much downside and is closing in on good structural support.
At present, the daily chart still looks to require another possible period of weakness. Thus, it’s difficult to suggest Tuesday’s weakness is immediately buyable. One should either wait for weakness down to the mid-$14k range or wait until this shows sufficient strength to turn back over $15500.
Dow Jones Transportation Average
