Interesting day as equities have snapped back in resilient fashion yet again to get over first resistance at 2048, but remain stubbornly range-boundand still trending lower from mid-April, as this breakdown attempt, from what many are labeling a Head and Shoulders pattern thus far has failed. At current levels, S&P futures would close out the week at around Flat performance wise and are within 2 ticks of closing levels from back on 5/4, two weeks ago. Breadth is a very solid 4/1 bullish, and we're seeing encouraging signs of strength out of both Technology and Healthcare.
Not much can be made of the SPX in either direction until prices get back above 2070, and given that yields have led the charge higher and are now stalling, we could easily see a "back-and-Fill" into next week before a larger rally gets underway. While movement back down to test and potentially break 2030 looks like a possibility into next week, support lies near 2000-2010 and should NOT result in a bigger breakdown, in this scenario.
Given subdued readings in most sentiment polls and the fact that Put/call has now climbed to multi-month highs (total, not Equity only), we seem to be at an area where many are expecting a drawdown, yet prices remain in consolidation mode just a few percent off all-time highs. Given that returns thus far have proven muted, it wouldn't take much to cause a "chase" in the market with SPX getting back up above 2070-2080 area, which would allow for a test and likely move above 2130 towards 2250. While the correlation in Crude oil to the SPX has broken down a bit, the movement in both Treasury yields, Bund yields and USDJPY seems quite important and all of these have rallied in recent days, getting up to near key make-or-break levels.
The 10-year yield made its move earlier this week, and now lies near important resistance on the upside- Movement back above 1.86 would result in 1.93 being tested. If this occurs and this level is exceeded, we'd likely see our second major Treasury selloff this year following the one from mid-February when stocks bottomed along with TNX into mid-Feb. However, this would have bullish implications for Financials, which would likely also breakout relatively speaking, providing a decent tailwind for stocks which would have importance given their % composition in the index. For now, its a waiting game, for Stocks, for Bond yields, and for the US Dollar which has moved up steadily in recent days.
Despite some minor stalling, we've yet to see any real reversal in the DXY, but 96 could prove to be important before some backing and filling. Yet this move hasn't occurred without consequences this week, as commodities have shown above average signs of starting to peak out, based on momentum waning on daily charts.
CCI index, as a gauge for commodities has begun to show early indications of topping out, brought about by yesterday's decline to multi-day lows following momentum having peaked out over the last week. While this uptrend at this time remains intact, it looks increasingly likely to give way, which could provide further near-term selling in precious metals and potentially Energy in the short run. For now, both of these lie near key make-or-break after recent weakness.
Overall, technically it still looks right to have a mildly bearish stance on stocks in the short run, expecting that lows yet again could be tested into early next week which would align with more concrete time-based cycles for a low. However, the start of bullish sector rotation along with poor sentiment while SPX has not even retraced 25% of this move up from mid-February has NOT gone unnoticed, and if anything, its right to think that the larger move for the next 2-3 months will be UP, not DOWN..