The near-term selloff in the bond market has persisted in recent days, and finally seems to be joined by some minor selling pressure in Equities. While the larger two-week trading range will remain intact barring a break below SPX-4060, Thursday’s trading showed the first break of the recent triangle, which has the potential to bring about some minor selling into next week.
SPX violating 4060 should allow for a quick test of 4000, but should not get materially below 3950 before turning back higher to exceed 4200.
Looking back, this week’s better than expected economic data regarding Retail Sales and PPI resulted in interest rates spiking higher globally. Yet US Equity markets have merely gone sideways since February 2. Meanwhile in Europe, many markets are nearing or have reached all-time highs.
With regards to the bond market, yields across the curve are growing very close to resistance, and further upside in yields looks doubtful given the presence of a TD Sell Setup (DeMark) which could form on $TNX within the next couple days, potentially Friday 2/17.
Meanwhile, seasonally speaking, as discussed earlier in the week, Equities are entering a difficult seasonal part of February, despite this month being far better performance-wise given its pre-election year seasonality statistics. Weakness generally can happen between the 11th trading day of February into the 19th.
This intra-day chart below highlights this range-bound pattern along with key areas of interest for both bulls and bears alike. As can be seen, the early breakdown Thursday recouped the entire period of weakness, filling the gap from the peak made late in the day Wednesday. However, during the afternoon hours, this bounce has begun to turn back lower.
In this case, breaking SPX-4090 would be a technical negative that will allow for an immediate test of 4060. Breaking 4060 would result in a bit more short-term volatility but ultimately should not get under 4000, much less 3950. Overall, the brief window for weakness looks to start now and could last into mid next week before a sharp bounce higher into March.
France’s CAC-40 has just hit new all-time highs
Incredibly enough, the recent breakout in UK’s FTSE 100 has now been followed by France’s CAC-40 index this week. It goes without saying that Europe has been monumentally stronger than the US in recent months.
However, the degree of larger breakouts in many of these index charts is truly a very constructive development. Indices like CAC-40 and UKX have both exceeded peaks going back nearly two decades, making these truly significant and positive moves which have a chance to show real longevity.
While many might correctly argue that CAC-40 is near-term overbought on daily charts, it’s the monthly charts which help to frame this discussion. This week’s all-time high weekly close likely results in further short-term acceleration, which could reach 7940 and above near 8150. A larger intermediate-term target lies at $9368.
SXXP- STOXX 600 index also pushing higher after last year’s meaningful long-term breakout
Technically speaking the STOXX 600 is also quite positive technically speaking following its push back higher after last year’s initial breakout attempt failed.
The large rally back to new highs kicked off in March 2021, running higher up to early 2022 before dropping back to test a meaningful area of support spanning seven years. Now this recent push higher for four of the last five months looks convincing that it should finally allow STOXX 600 ($SXXP-Bloomberg) to start trending higher.
This index made meaningful peaks back in 2000 as well as 2007, followed by two failed breakout attempts in both 2015 and late 2019. Now after having surpassed the highs again of this two-decade long pattern, it’s likely that SXXP starts to show more sustained outperformance.
Rallies should be able to reach targets at 600-700 following success in exceeding January 2022 peaks at 495.
Eurozone still pressing up relatively vs. SPX after lengthy breakout and no evidence of this reversing any time soon
When examining relative charts of Europe vs US Equities ($FEZ -SPDR Euro STOXX 50 ETF)vs $SPY), the breakout from late last year has allowed Europe to outperform dramatically over the last few months.
FEZ largely looks similar to $VGK and $EZU, which all allow for European exposure, but look far less bullish than charts of the indices themselves. Overall, given the combination of the long-term trendline breakout coupled with a lack of DeMark exhaustion on this relative pair, further strength looks likely in the months ahead.
Thus, while it’s difficult to find US based actively traded ETF”s to properly gain exposure to indices like CAC-40, or FTSE-100, the Eurozone ETF’s mentioned above all look quite constructive to own technically, expecting further upward progress on an absolute and relative basis to the S&P 500.
DeMark counts on both weekly and monthly relative charts on FEZ (or interchangeably, VGK, or EZU) vs. SPY look premature to peak out. Thus, Europe remains an outperformer over US stock indices, and nothing likely will materialize here until Spring to try to stop this move.
