Market Review Oct 17 2023 (10 year yield spike, cap-weighted index slightly spooked, but Equal-weighted, Mid & Small cap are unfazed by yield spike)
On Tuesday morning, US market woke up to the horror of 10-year yield spike again, spooked by the panic alarm of yield spike again, S&P 500 gap down on the open together with junk bond. The difference being, S&P 500 regained composure and attempt to close higher , filled & closed the gap entirely by market closing. While Junk bond close arounds the open, without filling the gap.
So what are the dicey factors that can unnerve market participant ?
Dicey charts
Dicey chart 1 : S&P 500 in triangle formation
SPX is trap inside a triangle formation, things could broke out either way. The list of things that can decide the next market movement, are shown below ( they can go either way )
1. Tesla Q3 earnings release by 18 Oct after market closing(AMC)
2. Powell Speech on 19 Oct afternoon
3. 10-Year yield spike/retreat
4. Major market risk-on/risk-off mood ( Q3 earnings surprise/disappointment, upward/lower guidance, Crude oil spike above USD 100 per barrel )
5. Market movement for no reason whatsoever
Dicey chart 2 : Junk bond and 10-Year yield
10-year yield and junk bond looks worrying. If 10-year yield breaks above 4.88 by a large margin, then junk bond could drop below previous week low and S&P 500 might break below early October low
Emerging Strength in Equal-weighted index, mid small cap
Looking at the broader market, is there pocket of strength in other indices and sector ? ( there are, as the title suggest )
Equal-weighted S&P 500 and Equal weighted Nasdaq 100 is performing better than their cap weighted counterpart on Oct 17th 2023
Small & Mid cap outperform large/mega cap on oct 16th, 17th 2023, despite the spike in Crude oil and yield. These are welcome development, and we need them to rally further to get a broader participation & breadth.
Equal-weighted S&P 500
Looking at the chart, we can notice a few things, in the green shaded area
End December - Early Feb rally : both Cap-weighted and Equal-weighted rally together ( equal-weighted outperform Cap-weighted counterpart as shown in bottom relative strength chart )
End May – End July rally : both Cap-weighted and Equal-weighted rally together ( equal-weighted perform as well as Cap-weighted counterpart as shown in bottom relative strength chart )
Therefore in terms of relative strength at a minimum, Equal weighted S&P 500 should perform as well as Cap-weighted S&P 500, in order for us to get a sustain bull run in Q4.
Mid & Small cap
Both S&P 400 Mid Cap and S&P 600 Small Cap manage to stay above 2023 yearly low, we need them to rise further , recapture & stay above 200-day MA in order to get stronger breadth.
In conclusion, Strength in equal weighted index, mid, small cap are very crucial in getting a strong end to Q4 in the market.
As always, we will continue to monitor the charts, assess the bullish/bearish evidence day-by-day to make appropriate capital allocation and investment decisions.
In the next 2 articles,
1) Bond market explainer series part 2 – why the much-anticipated 2023 recession did not happen ?
2) US stock market review
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