Market weekly Review Oct 23rd 2023 ( 10Y yield retreat to 4.84, market is still in a flux )
10Y yield hit a high of 5.01%, and US stock indices futures were selling off violently before US Market opening. But as 10Y yield retreat below 4.9%, and Dollar index DXY fell from 105.80 level, Stock market Bull attempted to take the fight to bears, but bear still had the upper hand as SPX close at -0.17 minor loss. It will likely take a few days to ascertain whether it’s dead cat bounce or start of a reversal.
first an overview of S&P 500 and US major indices.
Dicey chart : S&P 500 in triangle formation
SPX Gap down and sell off in the opening as a result of 10Y yield spike to 5%, but in less than 30 mins, Stock market attempted to “make a stand” at upward sloping 200Day MA,
and at 4200ish support zone. By market closing, it only manged to form a Doji pattern at 200Day MA.
Could this be the beginning of fakeout scenario 2(b) that I was referring to in my weekly market review entry( Oct 16 – 20) ? I remain doubtful after Oct 23rd market close, given the narrowness of current market breadth after the deterioration of market breadth last week and in SPX/NDX lower time frame ( 60 mins chart ) the chart has not yet even managed to get a higher high.
for this “reversal” in SPX is to be taken seriously, following conditions should be met,
=>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 )
=>SPX rise above 4280 , previous swing high ( above session high before Powell hawkish 19 Oct speech )
Just FYI,
This week is a heavy earning week where 4 out of Magnificent 7 announced their earnings, so Alphabet, Meta, Microsoft & Amazon might possibly lead the broader market out of the recent doldrum, but the bar is high because the following 2 conditions needs to be met,
Condition 1 ) Nasdaq 100, in particular Tech sector XLY/communications has to maintain outperformance against all other sector
Condition 2 ) Market breadth has to achieve upward thrust ( broad based market rally in S&P 500 remaining 493 constituent, Mid and Small cap )
Charts which has improved ( but pending further progress before reaching a verdict)
Junk bond and 10-Year yield
As 10-year continue to retreat to 4.84 %, Junk bond rise & candle bar cover previous 2 day range. We still need to watch over the next few days to make a judgement.
MOVE index
Move index made a stand and drop to 131.83 by Oct 23rd market closing, 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 collateral value of bond, which leads to lower fund available for market making/investment/trading, thereby reducing market liquidity.
An update on the Things that I don’t like ( Charts that suggest bearish odds )
% of SPX stock above 50days and 200 days MA
Gradual deterioration of overall breadth is still in progress, evidently in the chart,
percentage of SPX Stock above 50days MA, drop from 35% to 13.6% ,
percentage of SPX Stock above 200days MA, drop from 44% to 31.5% ,
We will monitor and assess this breadth measure in the coming days
Mid&Small cap, equal-weighted sell off for 4 consecutive day.
Mid & small cap has sold off for 4 daily session, same goes for equal-weighted SPX NDX Indices. If these continues to sell off for the next several session, underlying breadth destruction continues and things will grow more concerning.
SPX Declining issue vs SPX Advancing issue ratio has lowered
NYSE declining issue vs NYSE Advancing issue ratio has been trending down
For NYSE Stock market internals, things somewhat tamper down,
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 923, 2.82 to 1 NYSE Declining issue vs NYSE advancing 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 )
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 for 4 consecutive session. The longer it stays below 200 day 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 the 4 sessions. The longer it stays below200 day MA, the more concerning it becomes.
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.
10year Treasury note & TLT
As long as TLT and 10 year note price continue making new low ( meaning 10year yield will spike. ), stock will continue selling off.
But if there’s one saving grace, there could be 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
Dollar index is the proxy for Risk-on, risk off signal. It’s has drop from 106 – 106.50 congestion zone and close at 105.33, it needs to break down further for stock market bulls to stand any chance at all.
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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