The immediate reversal in Yields and US Dollar on Friday has delayed Equity markets from turning higher as quickly as anticipated. Technically speaking, both $DXY along with charts of $TYX, $TNX and $FVX still look to push higher into next week. Thus, an immediate rally has a bit less conviction in my mind until we truly see a stalling out and reversal in both the Dollar and rates. A couple things are important to highlight:
SPX has now pulled back under its 50% retracement zone, despite time also lining up at a key 50% retracement. The next price area of real importance lies at 3925-30, lining up with a 61.8% Fibonacci retracement which should be forthcoming.
Trendlines from October 2022 lows are in jeopardy of being broken, along with SPX pulling back to test its 200-day moving average. (I care less about the latter, and more about the former).
Key zones for time change in the very short-term seem to focus on two periods at this point: The final week of February, followed by March 14-16. Failure to stabilize by next week would unfortunately (for the bulls) make the time in mid-March important for a meaningful low in stocks.
It’s tough to abandon a bullish stance on an intermediate-term basis and turn bearish given the combination of intermediate-term breadth and momentum coupled with bullish sector performance out of leading groups like Technology along with bullish cycle projections. Furthermore, sentiment which had diverged in early February between short-term bullishness and long-term bearishness is now back to bearish on both a short and long-term basis.
However, in the near-term, a move under 3900 would indeed cause concern technically, and bring about a tactical short-term bearish view for a possible test of late December 2022 lows. At this time, this is not the “base case” but merely an alternate view.
Bottom line, it’s truly important that both US Dollar and rates stop pushing higher for risk assets to turn back up given such a strong negative correlation in both in recent months. Both bottomed in early February and have been pushing higher, directly coinciding with Equity weakness.
DeMark exhaustion on TNX and DXY still looks early as of today, Friday 2/24. For DXY this could show up within 2-3 trading days, while in TNX this looks more likely in about 5 trading days. Given that our recent TD Sell Setup for TNX did not result in much of a reaction, followed by rates pushing even higher makes it necessary to watch carefully for when a signal comes to fruition.
Short-term cycles are not looking like they’ll be successful this time around unless SPX bottoms next week. I discussed the success of this 80-day trading day cycle which had been successful on the last 4-5 peaks and troughs in SPX over the last year. Failure to bottom next week might mean that this cycle inverts in mid-March and markets bottom into this period, and not top as previously expected. This is also premature to suggest at this time.
Overall, I cannot say with conviction that markets are bottoming here and will rally back right away until/unless there is proof of SPX recapturing 4029 at a minimum, but really getting above 4060 will be quite bullish. Rates and US Dollar need to start to roll back over.
My Elliott view remains that the pullback from early February remains a three-wave decline and is corrective and overlapping. Thus, a big decline back to October lows remains highly unlikely in my view.
Any failure at holding 4000, ( I had said 4025-30) would break the 200-day moving average and 61.8% retracement and put a full retest of late December lows “on the table” before a March/April rally.
Treasury yields pushing back to new highs is an unwelcome development for Equity bulls
Unfortunately, this push back higher in rates did not follow-through as planned yesterday and is important to address. I continue to feel that watching rates and the US Dollar is quite important for equity investors, and it’s going to be difficult for Equities to rally if Treasury yields start to accelerate higher quickly.
As noted, the cycle composite seems to favor a late February peak in rates and pullback into April. However, the chart shown yesterday has reversed the bearish breakdown, which albeit unusual, has to be respected.
Bottom line, until TNX gets back under 3.84%, there does stand a chance for 4.15-4.25% to be tested for TNX. The psychologically important 4.00% level is certainly “On the radar” for many. However, it’s more about the trend in rates than a certain level. At this point, the short-term trend is bullish with todays’ reversal back to highs and a weekly close at new monthly highs for TNX.
I’ll continue to monitor this, but am watching Five-Year, 10-year and 30-year Treasuries quite closely, along with the 2-Year yield. Short-term technicals suggest further upward pressure can now happen into the end of February, making next week vital to keep an eye on for any evidence of yield reversals.
US Dollar also still pushing higher. While short-term stretched, this also has not yet rolled over.
Technically the Dollar looks to be closer to peaking out than Yields based on Friday’s price action. DXY’s rally back over 105 shouldn’t have far to go before approaching its 38.2% Fibonacci resistance of the prior decline.
As daily $DXY charts show below, prices have pushed up into a strong area of Ichimoku Cloud resistance
DeMark exhaustion looks to be 2-3 days away for $DXY, and should provide resistance to a further rally next week.
Copper’s breakdown should cause weakness down to $3.75-$3.85
Copper’s breakdown has followed suit in what’s been seen in other base and precious metals in weakening lately.
Friday’s violation of its four-month uptrend is a technical negative, and projects down to $3.75-$3.85 before this can stabilize and begin to turn back higher.
In the short run, it’s premature to consider buying dips, and one should temporarily hold off on expecting strength in Freeport McMoran ($FCX) or $COPX, the Global X Copper Miners ETF.
However, as February comes to a close and markets enter March, I expect Copper to bottom out and turn back higher, given its technical structure, as well as cyclical projections which favor strength into late Spring and a bullish intermediate-term trajectory for the next 12 months.
This breakdown likely represents a “C” Wave of an “ABC” type corrective pattern. Thus, while the trendline break, seen below, is certainly a bearish development, I’m skeptical that Copper retraces more than 38.2% of its prior rally, with 50% retracement being a maximum area of weakness before Copper stabilizes and turns back higher.
Bottom line, it’s wise to be patient, as opportunity should come about to buy dips in the weeks ahead. I’ll certainly discuss when I think Copper is bottoming, but for now it remains premature for most metals to bottom as Rates and the US Dollar are rallying.
Linked here is my CNBC interview from 2/23/2023.