Near-term trends are bullish for SPX, and I anticipate a sharp rally to finish the month of October after an interesting period of sector rotation in recent weeks. Industrials, Consumer Discretionary, and Small-cap stocks have begun to show notable strength this week, while Financials look close to also turning higher. Meanwhile, “Magnificent 7” hasn’t been so magnificent over the last month, and looks more like the “Lag 7” than the “Mag 7” with notable underperformance lately out of AMZN 0.70% , NFLX 0.68% , META 0.58% , MSFT -0.02% , while even NVDA 0.53% has begun to lose momentum. Meanwhile, IWM has just successfully broken out above SPY, going back since 2021, which bodes well for continued near-term outperformance by Small-caps. Overall, the combination of time-based indicators and Elliott-wave structure seems to project higher to late October/early November before a possible peak. Bottom line, Treasuries, Equities, and Cryptocurrencies still have a good likelihood of pushing higher into late October, while the US Dollar is likely to pull back sharply into November before bottoming. Regarding SPX, until trends turn down, I’m skeptical that “Tariff talk” or a Government Shutdown will do much to derail this rally.
In the short run, the rebound favors market bulls, and I suspect that a rally back to new highs is probable. Thursday brought about a breakdown in the US Dollar index, while Treasury yields fell further with ^TNX finishing the session at the lowest levels since April after its own break of near-term support at September lows.
Despite some minor consolidation apparent in short-term trends, I don’t suspect that 6555 will be broken in ^SPX over the next couple of weeks, and a coming push back to 6800 and potentially over this level looks possible between now and early November.
While it’s hard just yet to suggest a low is at hand in ^SPX after this week’s consolidation, the minor corrective “ABC” Elliott-wave style pattern on hourly charts should be near completion. ^SPX rose to achieve a minor breakout of the downtrend of the last 24 hours on a spike of volume late day, but more is needed to help add conviction that a move back to new highs is imminent.
Time-wise, I do expect Equity indices to be in a window where this can occur between now and next week, and I feel that the risk/reward remains attractive provided that SPX lies above 6550.
Regaining 6709 will be the key technical catalyst that helps to aid the near-term trend and helps to steer ^SPX back higher to new all-time highs. Given the recent correlation between Treasury yields and ^SPX, a firm breakdown in Yields looks possible to coincide with a bottoming and turn back in the ^SPX index.
S&P 500 Index
US Dollar index likely has begun its descent back to new monthly lows
The weakness in the US Dollar index directly coincided with Treasury yields also breaking down on Thursday, which proved to be far more consequential than anything that happened in Equity indices.
I expect that the US Dollar index should begin to pull back and form a giant triangle pattern from this past Summer before a final descent to new lows over the next couple of months.
Thereafter, a possible rally is possible, but for now, the minor uptrend looks to have been violated since September, and USDJPY has also begun to turn lower.
Overall, while this might take some time before an ultimate breakdown to new monthly lows, I am skeptical that the US Dollar is higher over the next month.
A breakdown certainly can lead to a bounce in Emerging markets, which looks much needed after some consolidation from September.
U.S. Dollar Index
TNX breakdown should lead yields down to test 3.90%
While the US Dollar and Treasury yields have diverged a bit in recent weeks, both sold off sharply on Thursday, achieving meaningful breakdowns.
I expect that TNX should pull back lower to test April lows, but it looks to be late in the game in its decline, at present. Thus, downside for yields might prove limited over the next week before a bounce.
This pullback from both May and July looks to be near completion. However, Thursday’s support violation does look important and might keep yields lower for another 3-5 days before a bounce gets underway.
In the bigger scheme of things, I still anticipate that the next couple of months might bring about a further decline in yields into 2026 before a larger Treasury selloff gets underway (where yields start to trend back higher).
Thus, I am not certain that it’s wise to consider lightening up in SHY 0.05% IEF 0.04% or TLT -0.22% as a minor pullback starting next week might prove minor before a larger move down under 3.86% from this past spring.
US Government Bonds 10 YR Yield
Rumors of an EEM demise might be premature, for now
While last week’s strong selloff in Emerging markets was discussed in this report in early October, it’s right to mention that this past week’s recovery in EEM -0.26% (iShares Emerging Markets ETF) has helped to recoup the prior decline from last week.
While there is a weekly TD Combo “13 Countdown” sell signal now on EEM -0.26% , that signal has not been confirmed. Furthermore, the TD Sequential signal arguably remains premature by at least three weeks.
If my thinking on US Dollar weakness over the next month proves correct, then I suspect there’s a window where EEM -0.26% might rally a bit further to test its 2021 peaks near $58.
While this trade doesn’t look to be the best risk/reward at this time, I feel it’s likely that some countries Equity ETF”s like Mexico and China likely can rally back after having weakened in the past week.
For now, a weekly close above last week’s highs at $54.69 should pave the way for a rally to $58, which one should use to lighten up in EEM -0.26% .
The US Dollar’s decline likely won’t persist too much longer on an intermediate-term basis before beginning a rally in 2026, and my thinking is that EEM likely would underperform in this scenario. For now, it might be a bit premature to expect too much EEM weakness if the US Dollar is falling.
Emrg Mkts Ishares MSCI ETF – EEM
