Market review Oct 8th 2023 ( SP500 bounce at 200D MA, sentiment reaching extreme level )
Stock Indices overview
S&P 500
On October 6th, it was bouncing quite decisively from 200-day MA, near 4200 support zone ( yellow shaded area. ) it was a congestion zone before the May-end July rally, which breakout to a high of 4600. 50 days MA is around 4350, and breakaway gap is at 4400. If further rally develop and capture these 2 levels, the market uptrend will have been proven beyond any reasonable doubt.
Nasdaq 100
For Nasdaq 100, the market undertone is more bullish, because it has only fallen down to area between 100-day and 125-day MA. It has closed the breakaway gap and recaptured 50 day MA. Also, while the price action made a lower low at 14432.60, the On-Balance volume made a higher low, which is a divergent. Price is forming a bull flag, and could potentially breakout in the days ahead.
With all the FUD ( Fear uncertainty and doubt ) flying out there
https://www.straitstimes.com/business/why-a-us-recession-is-still-likely-and-coming-soon
https://finance.yahoo.com/news/prepared-7-interest-rates-warns-195619274.html
https://finance.yahoo.com/news/hedge-funds-using-computers-sell-145430406.html
https://www.channelnewsasia.com/business/why-rout-government-bonds-worrying-3819836
Has the selling just begun or have sellers been exhausted? More importantly, is this a short term bounce ( which sets up the major downtrend subsequently ) or intermediate bottom before uptrend resume ?
To answer this question, we need to look Bond market and stock market sentiment,
Bond market
As the August-September market-turmoil stems from bond market ( and the entire 2022 ), let’s take a look at bond market to glean further insight.
IEF (7 – 10 years treasury bond ETF )
Price candle is around 90 level, it is trying to make a stand around October 2022 low, . The volume bar is quite high, if the seller is exhausted, it could reverse course. There’s also a potential MACD divergence.
TLT ( 20+ year Treasury Bond ETF )
TLT Price drop is so drastic that it touches volume bar, and Volume is at the highest in more than 10 years, we are likely looking at a capitulation, and price might possibly reverse soon after.
While the price action made a lower low at 84.79, the MACD made a higher low, which is a divergent.
TNX ( 10 year treasury yield )
10 year yield is all the angst. So much so that it’s the single most important thing that will make/break the market. Let’s take a look at the chart. While the yield made a higher high at 4.78% ( almost 4.88% on intraday basis ), MACD made a lower high, we are looking at a potential momentum divergence which could reverse the uptrend in yield.
Could it breakout higher again at 5% or higher, I seriously doubt it, because the volume in TLT and IEF are extremely high, suggesting imminent occurrence of selling exhaustion. Therefore as long as bond price stop dropping and reverse course, stock market will gain further fuel to rally.
Market sentiment
Market hit extreme fear of 18, in CNN fear and greed gauge at 18 on October 3rd.
CBOE Equity only Put call ratio hit an extreme high of 1.97 on October 4th
CBOE total put call ratio hit a high of 1.6 on October 4th
Seller is often exhausted when fear is at the highest, and as final bout of seller capitulate, that’s often where bottom are around the corner.
In the upcoming 2 articles, we will look at
1) market breadth and sector relative performance to gain further insight in the indices market.
2) Deeper dive in bond market
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