Day Hagan Tech Talk: Really?
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Summary
“A growing expectation that the Fed will keep interest rates higher for longer threatens to stifle the tech-stock rally, potentially dimming the outlook for indexes heavily influenced by the sector.” ~Wall Street Journal, emphasis mine.
Can’t Make This Stuff Up
Having discussed the short- and long-term trend of interest rates, including the narrative “higher for longer versus cutting interest rates” many times, I was floored when I read the summary above in the 9/18/23 edition of the Wall Street Journal. Where have they been? My wife is fond of saying, “Really? Can’t make this stuff up.”
If we look at the chart of the CBOE 10-Year U.S. Treasury Yield Index (TNX/43.19 = 4.31%), a decisive close above 43.62 (4.36%) could reignite downward selling pressure on equities, growth-related groups/sectors, and indices heavily influenced by them. A topside breakout by TNX would complete another short-term base and, considering the depth of the base, would yield, for starters, an initial target of 46.64, or 4.66%—Figure 1. Please shoot me an email for the specific price target calculation.
Figure 1: 10-Year U.S. Treasury Yield Index (TNX/43.19). | As Wall Street veteran Arthur Cashin stated, “Not quite a GPS in today’s terms, but enough of a guide to follow.” Please refer to the resistance level and layer of support highlighted below.
Note: Please let me know if you’d like to schedule a call to go over the process and discipline underpinning our Smart Sector with Catastrophic Stop, Smart Sector Fixed Income, and/or Smart Sector International strategies.
Trapped
In June the S&P 500 (SPX/4453.53) was trading in and around 4450. Since the negative one-day bearish outside reversal and downside follow-through we highlighted in late July/early August, the domestic equity market has had mixed/rough sledding. While there has been a fair amount of back-and-forth tape action and a lot of economic and corporate news during which lateral trading range patterns have been established, the SPX has gone nowhere over the past three months! Figure 2—trapped!
This week is filled with multiple central bank decisions, including the Fed’s on September 20. In the U.S., the Fed’s FOMC is not expected to raise rates but could tilt a little more to the hawkish side after a stronger-than-anticipated inflation report for August. A potential government shutdown on October 1 could also add extra drama on the political front. In addition, investors have their eyes on the battle between the United Auto Workers union and Detroit automakers.
Figure 2: S&P 500 with rising 200-day MA. | Until we get into Q4, I won’t be surprised by “more of the same” relative to the tape action described above and the resistance and support shown below. As NDR stated, “alleviation of macro headwinds and better market breadth [emphasis mine] could allow for a rally into year-end/Q4.”
Figure 3: Small Cap proxy. | Given a similar pattern of distribution (see Figure 2), I would pay special attention to the support levels shown by the price labels and green line. Also, please be cognizant of resistance—red lines.
Please let me know if you would like to schedule a call to go over the process and discipline underpinning our Smart Sector with Catastrophic Stop, Smart Sector International, and/or Smart Sector Fixed Income strategies.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 09.17-18.2023. Chart source: Stockcharts.com unless otherwise noted.
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