Happy Halloween to All!
The minor selloff during Monday’s session didn’t serve to detract too much from what’s been a stellar month for $SPX. As seen below, $SPX has been trending up nicely, higher by over 10% from 10/13 intra-day lows and higher by nearly 8% for the month of October. Thus, the combination of negative sentiment, bullish mid-term seasonality and some positive cycles gave plenty of warnings that October might live up to its billing as a “Bear-Killer” month. Yet, the question remains, will the Fed spook investors on Wednesday, or deliver a warm “trick or treat” dovish surprise that could help this rally to extend further? While I’ve expected a pullback into this volatile time into early November, I’m skeptical that $SPX gets under 3820 just yet. Charts of TNX are starting to give indication that further downside is possible with yields in the weeks ahead. This should be a positive for Equities given recent correlation trends, and should mean that SPX holds 3820-50 into late Tuesday/early Wednesday ahead of FOMC and turns back higher. Until/unless this red uptrend line is broken, it will make sense to buy dips, and I feel that any larger selloff might be postponed if rates start to trend back lower. Thus, while trying to buy dips remains a scary proposition for some, it appears even more frightful to not participate during a time when bullish seasonality could kick in even stronger post the November election.
Treasury yields have carved out an impulsive 5-wave decline, indicating further downside should be in store for Yields
Following a sharp bounce in yields in recent days, it looks likely that this recent bounce stalls out over the next couple days and TNX and TYX start to turn down yet again.
Any degree of turning back lower in yields likely would drive an equity rally this week, regardless if many are concentrating on the FOMC meeting for providing direction.
Daily $TNX charts show a successful five-wave decline in TNX, which didn’t occur in US Two-year yields given movement back up above 4.40%. The recent bounce should encounter strong resistance Tuesday/Wednesday at 4.15% with a maximum move to 4.20-4.25% before turning back lower.
Bottom line, this bounce appears to be a counter-trend move and ultimately should start to turn back lower to challenge and break late October lows at 3.90%. Any violation of this should very well lead Equities higher post FOMC. Breaks of 3.90% should target 3.64-3.68% for TNX in the weeks to come, with additional support at 3.40-3.43%.
Gasoline has been trending sharply higher ahead of Mid-terms
It’s been right to be bullish on Energy, thinking that WTI Crude oil likely has bottomed. RBOB Gasoline is another interesting area to watch specifically given the upcoming Mid-term elections.
Gasoline futures have trended up sharply since early September, and even on early week pullbacks remain higher by 2.92% over the last five trading sessions and up over 14% in the last month.
Rapidly spiking Gasoline prices might prove problematic for many who had hoped for relief in Gas prices to continue and might prove to keep the message of “high inflation and high food/gas prices” as a “front-burner” issue that should still be relevant for voters heading into a very important election.
Bottom line, gasoline looks likely to trend higher into the mid-term election, and likely move further to the upside along with WTI Crude into mid-December. Technically, prices could from the current 2.81 up to near 3.20, with 3.40 representing very serious overhead resistance to price.
Natural Gas bounce looks to extend near-term but likely proves short-lived into November
Natural Gas looks to be turning back higher after a very sharp pullback from mid-August into mid-October. Many recall that following Vladimir Putin’s decision to cut off even more gas supplies to Europe that natural gas actually fell instead of gained ground. Many fundamental analysts explained that Europe had done a better than average job of stockpiling inventories for this winter, with levels having surpassed 85% capacity.
Technically, trends do look to have improved in the very short run. Prices in front-month Natural Gas futures have successfully exceeded a key downtrend from last month’s highs. This looks likely to propel natural gas up to $7.41 and maybe higher up to $8. (Natural Gas is known to be very volatile, so one cannot rule out extreme movement in the near-term when trends start to improve.)
However, the key takeaway with regards to cycles and intermediate-term trends and momentum is that bounces likely will prove short-lived into November, and I do not see a revisiting of highs this year. Thus, gains in the weeks to come likely could prove to be attractive profit-taking opportunities and/or times to hold off on expecting a larger move to unfold.