Market Review Oct 24th 2023 ( Fear gradually subside & Stock regain footing despite high DXY & yield )
10Y yield was still hovering at 4.8% , while DXY was high, US stock indices manage to eke out some gain, this resilience to the still strong Dollar index and still high 10 year yield is quite impressive. could this possibly signal the start of stock market decreasing sensitivities to DXY and 10 year yield. We still need further proof on this over the few days to assess & reached a conclusion.
first an overview of S&P 500 and US major indices.
S&P 500
Is the RSI Divergence promising ? still too early to tell, and will need more rally from market to prove it.
Just a side note, Nikkei 225 chart looks promising, manage to get a hammer bar near above 200Day MA and previous swing low support area. I will observe worldwide stock market indices over the next few days , If there’s rally from them, it could signal increased risk appetite from investors.
I am still cautious after Oct 24th market close, and market need to meet several conditions laydown yesterday,
Condition 1: 10Y bond yield close below 4.6 ( alternative scenario : Stock sensitivities/correlation to 10Y yield has to drop, but there’s scant evidence of this happening )
Condition 2: SPX rise above 4280 , previous swing high ( above session high before Powell hawkish 19 Oct speech )
Condition 3: Nasdaq 100, in particular Tech sector XLY/communications has to outperform all other sectors and lead a broad based rally (need upward breadth thrust )
Before we look at various signal, let’s look at Microsoft and Alphabet post earnings market reaction,
MSFT post earning
MSFT Earnings beat market expectation, but market focus on cloud growth, on this front, Microsoft beat expectation and share price jump post earnings ( revised guidance upward as well )
GOOGL post earning
Alphabet Earnings beat market expectation, but market focus on cloud growth, on this front, Alphabet disappoint and share price drop post earnings
Things which has improved ( hint at bullish odds but need further confirmation )
Junk bond and 10-Year yield
As 10-year continue to retreat to 4.83 %, Junk bond rise & candle bar cover previous 2 day range. We need to monitor over next few days to make a judgement.
If junk bond rise for next several sessions , S&P 500 rally will likely continue.
Conversely if 10Y yield rise above 5.1 again , and junk bond sell off by breaking new low, then stock sell off will continue.
MOVE index
Move index made a stand and drop to 128.13 by Oct 24th market closing ( 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. )
First 2 to 1 NYSE Advancing issue vs Declining issue ratio
Wednesday Oct 18, 6 to 1 NYSE Declining issue vs NYSE Advancing issue ratio
Thursday Oct 19, 4.74 to 1 NYSE Declining issue vs NYSE Advancing issue ratio
Friday Oct 20, 3.86 to 1 NYSE Declining issue vs NYSE Advancing issue ratio
Monday Oct 23, 2.82 to 1 NYSE Declining issue vs NYSE advancing issue ratio
Tuesday Oct 23, 2.30 to 1 NYSE Advancing issue vs Declining issue ratio
An upward thrust in breadth is required for the start of a reversal and beginning of a bull run ( upward thrust = big ratio of 5 to 1 Advancing issue vs Declining issue is required )
An update on the Things that I don’t like ( Charts that suggest bearish odds )
% of SPX stock above 50days and 200 days MA
Overall breadth is still bad, evidently in the chart,
percentage of SPX Stock above 50days MA, drop from 35% to 17% ,
percentage of SPX Stock above 200days MA, drop from 44% to 32.4% ,
We will monitor & assess this breadth measure in the coming days
Mid&Small cap, equal-weighted stop selling off but chart is still bad
Mid & Small cap and equal-weighted SPX NDX Indices has stop selling off. A bigger and sustained rally is required to undo the underlying breadth destruction.
Transportation & Home builder ETF (XHB)
They have stayed below 200day MA for several session. It has stopped .bleeding by Oct 24th, and a rally above 200day MA is required nearly right away before market deteriorate further.
The only saving grace ( chart that doesn’t seem to suggest bearish odds )
Equal weighted technologies (RSPT) vs Equal weighted SPY (RSP)
Equal weighted technology vs equal weighted SPY chart still maintain its upward sloping shape despite SPX recent sell-off.
The decisive trump card ( 10 year treasury note, TLT, Dollar index )
Since Bond market is the ground zero for market instability, their chart & price will go a long way in deciding stock market fate.
10year Treasury note and TLT
There isn’t much changes in chart, reader can refer to previous entry for the chart. There is a potential MACD divergence, however before the MACD divergence can be confirmed, the 10 year treasury note and TLT price has to stop falling.
Dollar index ( could we see a the beginning of the end of negative correlation ? )
Stock rally despite the big rise in dollar index, could this be the beginning of the end of negative correlation between Dollar and stock ? we need to assess over the next few days to confirm on this break of negative correlation
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.
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