Technical trends for US Equities are bullish, but it appears that Monday’s mild pullback likely kicked off a short-term consolidation, which might take Equities initially lower this week before a late December breakout back to all-time highs. Interest rates have begun to push higher on the long end, while the US Dollar has also begun to stabilize and attempt to move higher. While I expect an eventual push up to new highs in late December, I’m not expecting this to happen right away, ahead of the December Fed meeting. Bottom line, trends are bullish from late November, but I suspect some backing and filling happens over the next week.
^SPX weakness looks to have happened on schedule into this week and suggests some consolidation should be likely for US Equities before gains back to new highs can occur. The risk/reward doesn’t look as compelling in the near-term technically, given multiple indices and Equity-based ETFs and Sectors up near resistance. Furthermore, ^SPX and QQQ both undercut last Friday’s intra-day lows on Monday’s close.
The path of the possible trajectory is shown by the arrows below. I suspect that the Equity market very well could grow a bit spooked with interest rates having begun to push higher as Monday’s push up in yields did successfully represent a short-term breakout. Furthermore, it’s not encouraging that stocks like NVDA really haven’t participated in this bounce in Equities, given their percentage within ^SPX and QQQ, and have lagged. ^SPX’s daily chart is shown below.
As shown below, the more meaningful technical price action occurred not with Equities but in the bond market and Japanese Yen on Sunday evening.
S&P 500 Index
As discussed last week, there remain some technical negatives that have begun to creep up in the market that need to be resolved before a push up to new highs can occur:
–QQQ has lagged this rally compared to ^SPX and not as close to former highs, given some of the lagging in Tech heavyweights like NVDA.
–Overall levels of breadth and momentum, despite having improved in the last week, remain not as bullish as they would be to provide comfort. Weekly MACD on both ^SPX and QQQ at present remains negative.
–Sentiment is creeping back to bullish territory with AAII’s percentage bulls having reached nine-week highs.
–Long-term interest rates have broken out of downtrends over the last few months.
Treasury Yield breakout has coincided with Equities weakening, but should prove short-lived
Interest rates broke out across the Treasury curve today, as it’s thought that the rate cut cycle very well might be nearing its culmination. If FOMC cuts 25 bps this week as suspected, this would be one more cut (3 total in 2025) than had been planned at this time last year for all of 2025, and inflation remains “sticky” and higher than the FOMC had projected.
The worry for bonds is that with global yields rising, the FOMC might feel compelled to take a hawkish dot plot outlook, which might cause further rise in yields on the long end even as the FOMC cuts the Fed funds rate.
Given my technical outlook of this bounce in Yields proving short-lived before a move back down to the lows, I’m less confident of a hawkish FOMC and believe that fighting this trend of rising yields should prove to be correct for now. However, in the near-term, Monday’s yield breakout was a negative for Treasuries in price terms, and should result in rates backing up a bit on the long side this week before reversing.
The Treasury Selloff directly coincided with Equities pulling back on Monday, with 2’s, 5’s, 10’s, and 30’s having all made breakouts of a multi-month pattern in yields.
However, we’re seeing steepening, and the rise is more pronounced on the long end. For now, this breakout is worth paying attention to, but ultimately should prove short-lived in my view and offer opportunity for Treasury investors later this week to buy dips as rates have pushed higher.
Technically, I am not expecting a move above 4.30% in ^TNX, and this breakout should lead to a buying opportunity for Treasuries over the next week on any move to/above 4.25%.
US Government Bonds 10 YR Yield
20-Year Treasury Bond Ishares ETF (TLT) should move down to 66.50 before some stabilization and bounce
As seen in price terms, the long end of the bond market looks to have violated a multi-month Head and Shoulders pattern that should now result in TLT pulling back around $1 lower in the next week.
Overall, it looks early to buy dips heading into Tuesday. However, by the end of the week, weakness should lead to buying opportunities.
20+ Year Treas Bond Ishares ETF – TLT
Japanese Yen leads the Majors down vs. the US Dollar, and a breakout in USDJPY likely results in this hitting minor new highs before a larger Yen rally
While a rally in the Japanese Yen should eventually happen as they approach a BOJ rate hike, today’s move is a technical negative for the Yen (Positive for USDJPY ) and should result in a push back to test and exceed November peaks of 157.89 by a small margin.
We’re seeing signs of the US Dollar stabilizing as a result, and EURUSD, GBPUSD, and the Yen can all weaken in the coming week. Overall, the US Dollar and Yields both look to push higher in the very near-term this week before some evidence of trend reversal happens. The breakout, however, has been far more pronounced in Treasury yields, but gradually, the US Dollar is now starting to turn back up for a good bounce, and today’s move is more pronounced in the Dollar’s rise vs. the Yen.
Overall, the key message for Monday is that both yields and the US Dollar look to be turning higher in the very short term. However, the cycle composites for both indicate that DXY and ^TNX should reverse course and start to turn lower between now and year-end.
So, I’m willing to bet that’s the case, eventually. But with regards to the Japanese Yen, a push higher in USDJPY up to 158 or slightly higher looks probable first.
U.S. Dollar / Japanese Yen
