SPX and QQQ have successfully stabilized following the sharp two-week downtrends from mid-July. However, given that Treasury and German Bund yields are both lying near key support while SPX and QQQ are just below key resistance, it’s thought that this week’s Central Bank meetings (FOMC, BOJ and BOE) could serve as the catalyst for upside breakouts in both Equities and Treasuries as markets get a bit more adjusted to policy. Movement over SPX-5492 and QQQ-468 likely could happen coinciding with a breakdown in TNX this week under July lows at 4.144%.
This week’s quiet, low volume start likely has to do with a combination of the important meetings later this week, along with being in late July, with many either being away on vacation or unwilling to take on big positions ahead of the FOMC, BOJ, or BOE Meetings.
However, it is important to recognize that both Bond and stock markets have rallied to just shy of meaningful resistance (or in the case of Bond yields, technical support) where some clarity on Central Bank policy might help coincide with the breakouts which cycles are suggesting might be possible.
As discussed last week, the market’s positives have to do with intermediate-term Equity trends from last October being intact, and leading groups like Technology, Industrials and Financials showing great technical strength, despite the minor pullback in Technology. Moreover, the “Summer of Small-caps” has begun, and the broader market participation has picked up markedly in recent weeks which has been helpful to market breadth.
As seen below, a move back over SPX-5509 would serve as the first positive for technical structure. Thereafter, any move over 5530 should help to carry SPX back to marginal new highs into August.
Overall, the next few days will be important for the short-term technical structure for both SPX as well as QQQ.
S&P 500
Homebuilders have snapped back quickly to new highs
Given that more clarity has been happening with US rate cut possibilities, Homebuilders have pushed rapidly back to new high territory.
As seen below, the last three weeks have successfully carried XHB -2.34% back above March highs at $111.96.
While stretched in the short run, these stocks maintain great technical structure, and further gains look likely into September ahead of a possible seasonal correction.
My favorite Homebuilding/Home Construction issues at this time ar GRBK -3.55% , IBP -1.58% , HOV -1.98% , MHO -2.06% , DHI -2.65% , PHM -2.36% , KBH -2.48% , and TOL -3.40% .
Homebuilders ETF
Bund Yields along with US Treasury yields are close to bigger breakdowns
Despite the breakdown on the shorter end of the yield curve, both the US 10-year Treasury yields along 10-year German Bund yields are treading water near key support which might be broken later this week.
While the policy differences between the US and Eurozone are quite different, the charts of bond yields of both US and Europe both look quite negative for yields, and it’s thought that this week’s meetings could set the catalyst for both US Treasuries and German bonds to extend their recent rallies (or as seen below, leading to breakdowns in yields on both)
TNX levels of importance lie near 4.14% while Bund yields should undercut 2.341%, which should lead both sharply lower in August before a possible bottom in September.
Given the recent correlation with Equities, it’s thought that breakdowns in bond yields should drive Equities higher. In this case, specifically, breakouts of the ongoing downtrends from mid-July would likely lead back to marginal new highs if bond yields are plummeting across the globe.
It should be noted that the 1-year Breakeven rate undercut mid-Summer lows two weeks ago, which puts this at the lowest level since late 2020. As shown below, the chart of the 10-Year German Bund Yield is trading right at key support and should break this potentially this week. This could send Bund yields down to 2.12, or 2.04, while meaningful support lies near December 2023 lows at 1.887%.
10 Year German Government Bonds
USD/JPY looks close to bottoming
It’s important to recognize that the recent Equity weakness also directly coincided with strength in the Japanese Yen, which began to accelerate lower upon breaking 158.
Overall, this weakness in USDJPY looks close to being complete. While one cannot rule out a move to 151, which would represent the 50% retracement of this year’s rally, the risk/reward is growing increasingly more attractive towards shorting the Japanese Yen.
Dollar/Yen should push back above 162 in the next 1-2 months, and it’s expected that a push back higher in USDJPY likely would coincide with a similar move in Equities back to new highs.
US Dollar / Japanese Yen
