Despite the ongoing volatility, this week’s price action suggests short-term stability for US Equities, and likely can begin to lead markets higher in a “2-steps forward, one-step back” type fashion in the weeks ahead. Multiple technical factors have come together to show an inflection this past week coinciding with breadth and volume capitulation at a time when sentiment had reached the most negative levels in years. Technology’s rebound from support this week is another reason for optimism, and should help to drive markets higher into mid-May. Thus, while trends and momentum remain negative from mid-February, seasonality and cycles show a rally developing following signs of tariff fatigue from Equities, and breadth has improved following the best one-week performance in SPX since 2023. Going forward, SPX 5500, QQQ-466.43, and DJIA-40,661 remain key areas to exceed to have confidence, and these could be exceeded heading into next week. At this point, it remains premature for me to consider this a bear market, nor should the US economy enter a recession.
Three important takeaways from this past week:
US Equities staged their best week since 2023 amidst a sea of pessimism and doubt regarding earnings, inflation, slowing growth, and tariff escalation. While there’s an immense amount of work to be done in rebuilding momentum at a time when trends from February remain bearish, this week’s stabilization and rebound is a definite positive.
Volume dispersion helped to drive the turnaround and recovery during a time when fear had reached capitulation. High Equity Put/call ratios were followed by an outsized 3.43 TRIN reading (Arms index) and then one of the best days of Advancing/Declining volume in years. Last week’s huge selling/shorting was followed by this week’s huge buying. Moreover, this all happened at a time when many breadth indicators had gotten ‘washed’ out, and momentum had reached very oversold levels. While many are waiting for tariffs to be resolved, the market did ring the bell this week and likely paved the way for forward progress into mid-May initially.
Technology staged the best performance of any of the major sectors this past week, as the Magnificent 7 ETF by Roundhill (MAGS 1.98% ) triggered and confirmed a TD Sequential buy signal (13 Countdown exhaustion) following its test of August lows. Additionally, Technology touched weekly long-term support vs. S&P on ratio charts of Equal-weighted Tech (RYT) vs. Equal-weighted S&P (RSP 1.65% ) which looked important as support. Note that DeMark’s indicators also lined up on this ratio to show weekly exhaustion as a TD Buy Setup. While some investors are abandoning Technology, the fundamental guidance from GOOGL 2.74% and AMZN 2.09% on Cap-ex spending over the past week seems to be an encouraging sign for the sector and for these companies peers within Technology.
US stocks showed better performance this past week than Europe as most of the world began to play catchup with recent US weakness. I view US stocks to have begun a stabilization process and are likely to do relatively better than most of Europe in the months ahead. However, this likely will take time given the degree of momentum deterioration in the US market.
Treasury weakness and spread widening drove the “Trump put” to kick in this week as there was a noticeable pivot to the earlier tariff concerns. While work remains left to be done, I view this ability to retreat as encouraging news, as the worst had been priced in. Despite sentiment remaining quite pessimistic, further negotiations should pave the way for a more manageable plan for fair trade in the weeks and months to come.
Both the US Dollar and US Treasuries plummeted over this past week, but the move in Treasuries looks overdone. While the US dollar could likely retreat further into this fall, the cycle for Treasury yields turns down sharply at the end of this month, and the trend is lower into August. Thus, I don’t expect 30-year yields to exceed 5% and I feel that this recent weakness will be contained in the near future for Treasuries.
S&P 500 Index
For those that care about short-term price action, S&P is likely to trend higher into next week, exceeding 5500 by a small amount before stalling out. While 5500 is indeed a strong area of upside resistance, this trendline extending lower from late March is equally significant. The combination of this intersection likely represents the first true test of this rally off this week’s lows.
Financials provided the market with some very good news on earnings Friday; Technically, this sector still looks quite appealing
As shown below, there hasn’t been any real damage to the Financials sector when viewing this group in relative terms to the S&P (Both in Equal-weighted terms – RYF vs RSP 1.65% ).
JPM 4.00% and MS 1.44% , not to mention BNY 0.93% , provided the market with good earnings news on Friday morning. Equity sales and trading beat estimates handily at JPM. This was encouraging at a time when many had grown fearful about uncertainty about the economic environment.
At present, Financials remains very well positioned technically speaking and as the 2nd largest sector within S&P 500, the ability of this sector to have held the breakout from late 2024 is a very good sign technically.
RSPF/RSP
US Dollar weakness likely persists into late Spring
The Dollar and Treasury yields have diverged sharply in the last couple of weeks, and the US Dollar has made one of the largest short-term declines seen in nearly 60 years. The price of the US Dollar index (DXY) has undercut prior lows, which will likely take the DXY lower in the next 1-2 months before an intermediate-term bottom.
At present, the long-term bullish uptrend in DXY presents more of a long-term bullish picture for DXY, showing strong support in the mid-$90s. While the short-term trend is certainly quite bearish, one should look for opportunities for DXY to bottom into the month of May if/when weakness hits the 96-97 zone of technical support.
DXY – DXY
Treasury yields shouldn’t stay high too much longer
This rise in 30-year yields at a time when inflation expectations have come in better than expectations clearly looks to reflect concern about tariffs and a potential lack of confidence in US Dollar assets.
While many expressed concern about yields being higher, the key area remains 5.00% for 30-Year yields which looks like very strong resistance.
Treasury yield cycles look to turn lower in late April and trend down into August, which reflects some coming stabilization in the Treasury market at a time when many have grown more pessimistic.
In the short run, yields have pressed higher sharply and lie just below important resistance. This will be important for investors to monitor in the weeks ahead, as a breakout of 5.00% could prove important for psychological reasons and might also represent a bullish breakout which could allow yields to trend higher a bit longer.
Overall, I do not expect yields to press higher for more than another 2-3 weeks before making a meaningful peak. However, in the short run, this chart looks important to monitor given its breakout potential.
CBOE 30 YR Treasury Bond Yield
