Market Review Oct 25th 2023 ( Fear increase & broad based market sell off)
10Y yield rose to 4.95% and DXY is still high, all US stock indices SOLD-OFF off by more than 1% ( Nasdaq 100 drop 2.47%, S&P 500 drop 1.43%, DJIA fall by a mere 0.32% ) . Every other indices and sector plunged hard, things are deteriorating quickly & price action is extremely discouraging.
Can the Fear spread further & stock sell off further? Further sell-off is likely as long as VIX is above 20, MOVE index is above 130. And there’s still no signs of fear/sell-off exhaustion, because of absence of the following high reading signals,
Fear/selloff exhaustion signal 1: ARMS index ( has been below 2 in current market turmoil )
Fear/selloff exhaustion signal 2: NYSE Decliner-advancer ( has been below 5 / 6 to 1 in current market turmoil )
Fear/selloff exhaustion signal 3: NYSE DOWN/UP volume ratio has not been extreme enough ( extremely bad = above 90% DOWN/UP volume ratio, the higher the better, which has been absent in current market turmoil ).
Let’s review S&P 500 and US major indices.
Another line in the sand to watchout for, March low to July high Rally 61.8% Fibonacci retracement is 4110ish, if stock fall and close below 4110, sell-off could precipitate.
Selloff Scenario 1 ( from my weekly market review entry ) applies. Sell off likely continues until we see extreme selloff exhaustion sign / panic buying resume. Even after market bottom ( swing low appear ) , following conditions apply for reversal/start of new bull rally to be taken seriously,
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 )
Where upward breadth thrust ( panic buying sign )are defined as follows,
1) broadbased market rally or
2) big NYSE buying volume ratio or
3) big NYSE advancer vs decliner ratio
An update on the Things that I don’t like ( Charts that suggest bearish odds )
Junk bond and 10-Year yield
As 10-year rise to 4.95 %, Junk bond fall , still need to monitor over next few days to assess extent of market damage, or any signs of selloff acceleration/recovery.
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 rose to 131.21 ( 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. )
Notable 3 to 1 NYSE Decliner vs Advancer ratio again
Wednesday Oct 18, 6 to 1 NYSE Decliner vs Advancer ratio
Thursday Oct 19, 4.74 to 1 NYSE Decliner vs Advancer ratio
Friday Oct 20, 3.86 to 1 NYSE Decliner vs Advancer ratio
Monday Oct 23, 2.82 to 1 NYSE Decliner vs Advancer ratio
Tuesday Oct 24, 2.30 to 1 NYSE Advancer vs Decliner ratio
Wednesday Oct 25, 2.98 to 1 NYSE Decliner vs Advancer ratio
% of SPX stock above 50days and 200 days MA
Overall breadth is bad
percentage of SPX Stock above 50days MA, drop from 35% to 14.6% ,
percentage of SPX Stock above 200days MA, drop from 44% to 29.4% ,
We will monitor & assess this breadth measure in the coming days
Mid&Small cap, equal-weighted chart is extremely ugly
Mid & Small cap and equal-weighted SPX NDX Indices sell off resume, and underlying breadth destruction continues.
Transportation
Transport sector is closely watched because it is an important signal in Dow Theory to confirm the rise/fall in DJIA / XLI index and over health of industrial sector. Transport broke below upward sloping trendline & closed below 200-Day MA for several session. Waterfall plunge of 2.44%, the longer it stay below 200D MA, the more concerning it becomes.
Home builder ETF ( XHB )
Housing sector is 12% of US economy. Housebuilder sector ETF XHB broke & closed below 200Day MA, it has stayed below 200day MA for several session, made a new low again on Oct25th. the longer it stay below 200D MA, the more concerning it becomes.
The only saving grace ( charts that doesn’t seem to suggest bearish odds )
Equal weighted technologies (RSPT) vs Equal weighted SPY (RSP)
Despite the sell-off in SPX for the past 2.5 months, Equal weighted technology vs equal weighted SPY chart still maintain its strength, hinting at money rotation into technology sector.
NYSE McClellan Oscillator
SPX made a lower low, but NYSE&Nasdaq McClellan Oscillator is still making a higher low ( BORDERLINE ), potential divergence in development, signalling that breadth deterioration is less bad underneath the surface.
But it’s still FAR from conclusive, verdict is not yet out, observe again for few more days
The decisive trump card ( 10 year treasury note, TLT, Dollar index )
Bond market is the ground zero of market instability, their chart & price is crucial 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
Stock slide , VIX rise above 20 and Dollar index went up, enough said.
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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