SPX’s technical trend and momentum remain bearish and not oversold, and Friday’s breakdown to new monthly lows is considered a near-term technical negative for patterns on many US indices and ETFs. While a short-term low could be approaching next week, possibly into CPI, it’s important that markets start to exhibit some elements of capitulation that were lacking as of Friday’s close. Given that good economic news has resulted in Treasuries selling off sharply, both Treasury yields and SPX, QQQ, and RSP all made breakouts on Friday (Bond yields breaking out higher, while stock indices made downside breakouts). Given the return to Stock/bond positive correlation, some evidence of yields peaking will likely be important to trust any bounce in the Equity market. Stocks like AAPL and NVDA look to have arrived near important levels, and given the worsening in sentiment in recent weeks, an about-face could be approaching. However, the extent of the breadth deterioration has proven severe in recent weeks, and today’s support violation suggests that any low remains premature.
As the daily SPX chart shows below, a breakdown of prior lows that held back in December and early January doesn’t give much comfort that support has been reached yet. Rather, a close under 5829 could produce near-term downside acceleration, which might cause SPX to get close to 5700 before lows are in place.
As discussed last week, 5700 lines up near last November’s lows and has some Fibonacci-related properties based on the prior August-December rally.
Based on the lack of capitulation showing up into Friday given lackluster TRIN levels (ARMS index) and subdued Equity Put/call data, it might still take some additional time before US Equities can stabilize.
DeMark indicators also look early for SPY but might materialize by next Wednesday when forming TD Buy Setups. This might be important, as next Wednesday coincides with the next CPI report.
For now, lows look premature, but SPX could be nearing a trading low into next week if/when it nears 5700.
S&P 500 Index
Breakout in TNX Friday happened concurrently with SPX breaking its January lows
“Breakouts, breakouts everywhere!! ” Unfortunately, the breakout in TNX proved to be negative for SPX as rates have continued to climb, and Friday’s “goldilocks” economic data coincided with SPX also breaking out to the downside to new monthly lows at the same time.
This positive correlation between Treasuries and SPX was touched on a bit yesterday in this report, but risk assets remain within a “good news is bad news” framework, as better economic data has directly led Equities lower.
As daily TNX charts show below, the breakout above last April 2024 peaks in yields doesn’t inspire confidence that SPX is bottoming given their recent correlation trends.
While I don’t expect a move above 5.02%, I do feel that 5.84-5.90% could now be attained into mid-next week before much relief.
If next Wednesday’s core CPI shows a moderate +0.2% MoM reading or below and not +0.3% or above, the benign CPI reading very well could coincide with the much-anticipated bounce.
US Government Bonds 10 YR Yield
Financials decline on Friday was not helpful given its size within SPX
Two of the key culprits outside of Technology on Friday were Healthcare and Financials underperformance.
As seen below, the plunge in Equal-weighted Financials ETF (RYF) under its recent consolidation support is a technical short-term negative for US Equities.
Financials remains one of the largest parts of SPX outside of Technology, at 12.5%, so a breakdown in Financials, even if short-term, presents problems to the idea of SPX bottoming.
In my view, a decline to $68 or to $66.55 at a maximum should create an attractive entry point for the Financials ETF into next week.
However, structurally, Friday’s move is bearish and will likely need to extend lower a bit more ahead of reaching support.
Invesco S&P 500 Equal Weight Financial ETF
Healthcare’s peak last Fall provided some early clues regarding breadth deterioration
In many of the charts I’ve highlighted in recent weeks regarding the Summation index and Coppock Curve, or the Percentage of SPX names above their 200-day moving average or within 20% of 12-month highs, most of these show a peak in market breadth that happened last Fall, not just in mid-December 2024.
As shown below, the Equal-weighted Healthcare ETF made a prominent peak last September before plummeting in recent months.
This looks important, similar to Financials, as a negative catalyst for Equal-weighted S&P 500 and market breadth, given its size within the S&P 500.
Healthcare is the 2nd largest of all sectors within SPX, so steady deterioration normally causes market breadth to start to wane.
While the monthly relative charts show Healthcare potentially trying to bottom out relative to SPX (which likely would provide a tailwind) at present, this downtrend remains intact.
Thus, it’s important to take a look at the non-Technology related sectors to get some clues as to what might need to happen to these sectors like Healthcare and Financials before SPX can begin a sustainable advance.
In this case, it would be helpful to see Healthcare break its downtrend which has been ongoing since last September. I’ll discuss the monthly Healthcare chart and my thoughts on the relative relationship next week, as this has morphed into a “so-bad, it is possibly good” type scenario for purposes of mean reversion.
Invesco S&P 500 Equal Health Care ETF
