Market weekly Review Oct 16-20th 2023 ( Powell speech tanked market, highest 10Y yield in 25 years, Broad based market decline)
Bond market is all the rage and the focus of everyone attention during the week. Bond market sell-off is in full swing during the week, 10Y yield go as high as 5% before a tiny retreat on Friday ending at around 4.91%.
So what happen during the week, from Oct 16 – 20th ?
first an overview of S&P 500 and US major indices.
Dicey chart : S&P 500 in triangle formation
SPX sell off during the week as a result of 10Y yield spike, Crude oil spike, Powell hawkish speech +Q&A session during Economic Club of NY luncheon event. Price appears to broke below triangle formation, could it fall further and is it time to short the market?
If we zoom out and look at the daily chart of both Equal and cap weighted,
For Cap-weighted counter part, price is sitting at 200Day MA and 4200ish Support zone ( many support resistance, congestion around this area )
For Equal-weighted counter part, price is sitting at 5500-5600ish Support zone ( many support resistance, congestion around this area )
The risk-reward of shorting the market is very dicey around this area, because the outcome is very binary ( likely will know by early-mid of next week )
It will either be
Scenario 1 ) Melt down through the support Zone and sell off hard
Scenario 2(a) : Defend support zone, bounce back and possibly reverse
2(b) : False breakdown below support zone ( AKA Fake out ), Bounce back and possibly reverse
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 & stay below previous week low. If junk bond sell off for next several sessions , S&P 500 sell off will likely continue. Could it break below early October low ? Binary outcome ahead,
Scenario 1: 10Y yield make new high and junk bond make new low, stock sell off continues
Scenario 2: 10Y yield back off and Junk bond bounce back, will bring relief rally for stock and possibly reverse
MOVE index
Move index increase to 135 level by Oct 19th market closing, so we will monitor this fear gauge of bond market 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 Bond collateral value, which leads to lower fund available for market making/investment/trading, reducing market liquidity.)
% of SPX stock above 50days and 200 days MA
There’s a gradual deterioration of overall market breadth, evidently in the chart,
percentage of SPX Stock above 50days MA, drop from 35% to 15.4% ,
percentage of SPX Stock above 200days MA, drop from 44% to 32.8% ,
We will monitor and assess this breadth measure deterioration in the coming days
Mid&Small cap, equal-weighted sell off for 3 consecutive day.
Mid & small cap sold off 3 days consecutively, If these continues to sell off for the next several session, underlying breadth destruction continues and things will grow more concerning.
5 to 1 SPX Declining issue vs SPX Advancing issue ratio
NYSE some what heavy selling
In the past 3 consecutive days ( Wednesday to Friday session ), For every 1 advancing issue in SPX , there for 5 declining issue in SPX, indicating very heavy selling
For NYSE Stock, things somewhat tamper down over the last 3 days
Wednesday, 6 to 1 NYSE Declining issue vs NYSE Advancing issue ratio
Thursday, 4.74 to 1 NYSE Declining issue vs NYSE Advancing issue ratio
Wednesday, 3.86 to 1 NYSE Declining issue vs NYSE Advancing issue ratio
Transportation
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 make new lows and stays below 200Day MA for next several sessions.
Home builder ETF ( XHB )
XHB broke and closed below 200Day MA, if it continues to fall and stay below 200day MA for the next several session it will not look good for stock market ( and the economy )
The only saving grace ( chart 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 months, Equal weighted technology vs equal weighted SPY chart still maintained it’s upward sloping shape. ( this chart could be the very few scant consolation in the face of overwhelming bearish charts )
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.
10Y Treasury note and TLT
As long as TLT, 10-year note price continue making new low ( meaning 10year yield increase. ) stock will continue selling off.
If there’s one saving grace, there could be a potential MACD divergence, however before the MACD divergence can be confirmed, the 10Y treasury note and TLT has to stop falling.
Dollar index
Dollar index is the proxy for Risk-on, risk off signal. It’s currently coiling in in 106 – 106.50 zone, the next directional move higher or lower will go a long way in deciding stock market fate.
Stock market sensitivities to Bond market and dollar is extremely crucial in the days ahead, selloff/relief in bond market ( spike in 10 year yield ) , rise/fall in Dollar index will inform the next stock market movement, theses will be the most-watched intermarket signal
As always, we will continue to monitor the charts, assess the bullish/bearish evidence in the days ahead to make appropriate capital allocation and investment decisions.
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