Market Review Oct 19 2023 ( Powell speech crashed the market again, highest 10Y yield in 25 years, Broad based market decline)
Bond market sell-off continue , highest 10-year yield since 2007 and market is not getting any help from Fed Chair Powell. In fact, he made it worse yet again, his communication in fed meeting, or major event speech has been disastrous in terms of stabilizing rate expectation, he is unnerving market nearly every single time.
His speech & Q&A yesterday in New York Economic club luncheon, caused a significant intraday volatility, to be precise 1.15% movement during the session.
By Oct 19th market closing, There are additional threatening development in market internals and bond market.
But first an overview of S&P 500 and US major indices.
S&P 500
Dicey chart : S&P 500 in triangle formation
SPX is still inside a triangle formation. So far, it’s not looking good, yield spike/tesla earnings and Powell speech has caused candle bar to edge ever closer to lower portion, could it/when will it broke below and fall further is anyone guess. The list of things that can lead to the next breakout are shown below,
1. 10-Year yield spike/retreat
2. MOVE index Spike or retreat
3. Major market risk-on/risk-off mood ( Q3 earnings surprise/disappointment, upward/lower guidance, Crude oil spike above USD 100 per barrel )
4. Market movement for no reason whatsoever ( Exhaustion of buyers/seller, shift in flow of funds )
Major US indices overview
The broad based decline is getting concerning, it’s hard to see an end to the sell-off just yet.
Things I don’t like ( charts that suggest increase bearish odds )
Junk bond and 10-Year yield
10-year continue to hover around 5%, Junk bond fall again & stay below previous week low. If junk bond still stay below previous week low for next several sessions , S&P 500 sell off will likely continue. Could it break below early October low ? Possibly, hard to say at this juncture .
MOVE index
Move index increase to 134 level by Oct 19th market closing. It’s the ground zero of market instability, so we will monitor it carefully over the net few days, if it breaks above October high of 141, concern will increase. High MOVE index increase bond haircut, causing a reduction in collateral value of bond, which leads to lower fund available for market making/investment/trading, thereby reducing market liquidity.
% of SPX stock above 50days and 200 days MA
There’s a gradual deterioration of overall breadth, evidently in the chart,
percentage of SPX Stock above 50days MA, drop from 35% to 14.2% ,
percentage of SPX Stock above 200days MA, drop from 44% to 37% ,
We will monitor and assess this breadth measure deterioration in the coming days
Mid&Small cap, equal-weighted sell off more than cap weighted index
If it continues to sell off for the next several session, things will grow more concerning. Equal weighted sell off more than Cap weighted counterpart 2nd days in a row, indicating worsening market breadth.
S&P 500 Defensive sector outperformance
Over the last 1 week period, Defensive sectors ( Consumer staples, Utilities, Real estate ) outperform and rank higher than Offensive sectors ( Technology, consumer discretionary, Communications ). If defensive sector continue to outperform, market sell off will continue.
5 to 1 Advancing issue vs Declining issue ratio
For every 1 advancing issue in SPX / NYSE , there for 5 declining issue in SPX / NYSE, indicating very heavy selling
Transportation sell off
Transport sector is closely watched because it is an important signal in Dow Theory to confirm the advance/decline + overall health in DJIA / XLI industrial sector. Transport broke below upward sloping trendline & closed below 200-Day MA, concern will increase IF it falls and stays below 200Day MA for next several sessions.
Home builder ETF ( XHB ) sell off
Housing sector accounts for 12% in US GDP. Housing sector is an important bell weather to US economy. So we will look at Home builders ETF to assess overall health in this sector.
XHB broke and closed below 200Day MA, if it continues to fall and stay below 200da MA for the next several session it will not look good for stock market ( and the economy )
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
Disclaimer : The information presented here are for research and education purpose only, and does not constitute investment advice, trading recommendation, author shall not liable for any action taken by any individual/company with regards to the information presented here or any part of the website - https://marketcycleedge.substack.com/