Day Hagan Tech Talk: Intimidation
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Summary
Higher interest rates are weighing on equities, and focus will be on the Fed’s conference this week.
Speaking of Intimidation
“I used to think that if there was reincarnation, I wanted to come back as the President, or the Pope, or as a .400 baseball hitter. But now, I would want to come back as the bond market. You can intimidate everybody.” James Carville’s words hit the nail on the head last week as higher interest rates (Figure 1) weighed on equities, especially large cap growth-oriented/technology. The technology-heavy NASDAQ 100 has declined in four of the past five weeks. In like fashion, last week was the third straight down week for the technology-heavy S&P and NASDAQ. A Small Cap proxy has also declined for three consecutive weeks. Meanwhile DJIA has fallen two of the last three weeks.
Speaking of interest rates and besides NVDA’s EPS report late Wednesday, as skepticism builds over any explicit near-term peak policy signals from the Fed (higher-for-longer rate policy), traders and investors will focus on the Fed’s Jackson Hole conference, 8/24 through 8/26. Fed Chairman Powell will speak Friday, 8/25. JP Morgan states, “We do not expect any deviance from the Fed’s hawkish tone, but investors are hoping for a more balanced response from the Fed.” Ed Yardeni counters, “We are counting on Fed Chair Jerome Powell to calm the bond market.” To which I say, “I’m skeptical. We’ll see.” Please refer to the Fixed Income Strategy portion of last week’s report.
Figure 1: 10-Year U.S. Treasury Yield Index (43.42 = 4.34%). Closing prices shown. | Even with hiccups (pullbacks) along the way, which wouldn’t surprise me, this chart configuration wants to go higher.
Figure 1 aside, another consequence might eventually become more apparent in the housing market. While not close to my first mortgage, which was over 13%, 30-year fixed-rate mortgages topped 7%, marking the highest levels in more than 20 years.
The recent bump in interest rates has caused domestic indices to come down and test, and thus far hold, initial support—Figures 2-4. The quality of any future rallies/rally attempts will help determine its sticking power. To paraphrase from a recent report, a guidepost for when the current short-term pullback may end will be when a “higher/stronger open, weak/lower close” no longer occurs or when market indices open weaker (lower) and close strong (up or well off their intraday low).
Figure 2: S&P 500 with 21-day MA, 50-day MA, and 150-day MA. | Important levels of underlying support are depicted below, as are areas of selling pressure (resistance—red lines). A close above 4450 to 4455 would solidify the initial layer of support between 4335 and 4325+/-.
Figure 3: Small Cap proxy with Stochastics indicator (overbought/oversold). | Let’s keep it simple (KISS)—red lines and price labels = resistance; green lines and price labels = support. Within a wide trading range, there has been a decline down to support. Consequently, some type of near-term, oversold (stochastics—lower frame, green line) rally attempt should occur from this area.
Figure 4: DJIA (cyclical oriented) with Stochastics indicator (overbought/oversold). | KISS—green lines = support; red lines = resistance. There has been a decline down to support. Consequently, some type of near-term, oversold (stochastics—lower frame, green line) rally should occur from this area.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 08.21.2023. Chart source: Stockcharts.com unless otherwise noted.
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