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Why SPY Reversed

S&P 500 ran well into the data release, surged only to reverse in a four-hours selling streak. Some sectoral culprit? No, long-dated bonds did it – TLT daily slide did it. Was it fundamentally justified? Usually, you would see USD go up in tandem, but that didn‘t happen. The selling looks to me to be a combination of exhaustion to the upside (nicely illustrated with MACD divergence) and renewed rotation out of semiconductors after NVDA did its best to catch up to the upside around the data release.

Here is the TLT chart in question, and it better be put right next to high yield corporate bonds performance lately so as to help determine when the current bout of weakness ends (one of the many tools in my toolbox).

S&P 500 and Nasdaq
S&P 500 and Nasdaq

Were the PCE data disinflationary? That‘s still been very much the case – but have earnings become that much less attractive compared to yields over the day? For all the question marks still out there, I would argue that higher lows are still there in equities, and that first we see rotations and then broadening out as IWM seems to hint at regarding true(r) rate cut expectation, weeks to months ahead.

Precious metals and oil moved in line with my expectations in the data release aftermath – and that counts for as much in the upcoming stock market path as the sectoral moves themselves.

One more note on long bonds and Friday‘s TLT move – when the US runs a 6% budget deficit and has a 4% trade account deficit, with Japan the largest friendly foreign bondholder for over a year floating policy normalization, and geopolitics playing out in finance, making many countries from the Global South think twice about holding Treasuries. That leaves the Fed ultimately in the buyer of last resort positione coupled with coralling domestic institutions into Treasuries. Hence, I consider the current appreciation of rate cut odds as missing this aspect and concentrating only on domestic economy performance, stagflation / recession worries and soft landing engineering.

Just consider the inflation data backing the Fed has to do a victory lap – the preferred core PCE yoy is at 2.6% vs. 2.8% restated projection. Can‘t be overlooked. Are commodities falling apart here? No, they are in a range, just like bonds are. There is no rush to the exit door, and Fed‘s stress tests didn‘t raise fears about the banking sector. Liquidity watchers are just waiting for it to also become clear Bitcoin could keep above $58K going back to the midpoint of its range just like oil did.

Just focus on the truly important. Way more details and answers (incl. to the question in the title) follow in the individual market sections – including stocks to watch – below.

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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 3 more of them, with commentaries.

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All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.

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