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Monday, after lots of spooky headlines, the SPDR S&P 500 ETF (SPY) touched its 23-month transferring common (MA) or the two-year biz cycle breakout level proper round 417.
Plus, the iShares 20+ 12 months Treasury Bond ETF (TLT) flashed inexperienced as did IWM, the small caps.
The large query is, can IWM shut out October above 170?
If not, any rally might be short-lived.
As we speak was an fascinating day.
SPY additionally cleared again over the 200-day MA, which if held, may imply extra reduction rally.
However, TLT is reversing as properly, so what we do not need is for the lengthy bonds to outperform SPY.
Why?
That will be risk-off and recessionary. It might embolden the already daring commodities to run, particularly with the greenback falling.
Which we see as #stagflation.
From a technical standpoint, sure, it is a imply reversion.
Nonetheless, if you happen to look again to July, it’s the fifth oversold rally in TLT.
Sustainable?
The most important elementary dynamic is that inflation can go hyperbolic (it already is in sure delicate commodities due to the geopolitical soup).
And, if the Fed relaxes now, one should surprise if they are going to be caught from behind once more.
Nonetheless, for us, a very powerful side of that is how TLT performs towards the SPY and the way HYG (junk bonds) carry out towards the TLT.
Bulls need TLT to underperform each.
Notice the ellipses and textual content on the chart of TLT or the 20+ 12 months lengthy bonds.
Again in March, once we had the financial institution disaster flash crash, bonds signaled a flight to security by outperforming the SPY beginning March 7.
On the identical time, the value was round 101.
Actual Movement confirmed a bullish momentum divergence as TLT crossed over the 50-DMA lengthy earlier than the value did.
SPY crashed, and TLTs rallied to 109.10 in a matter of days.
Quick ahead to right now, TLT stays barely underperforming the SPY.
The momentum indicator exhibits a imply reversion however not a bullish divergence.
Ought to TLT do what it did in March, that’s, outperform the SPY, take that as a warning.
That could be a signal of risk-off, and maybe a harbinger of an oncoming recession; or worse, stagflation.
Let’s not freak out but although.
It’s all the time good to plan forward but act on worth accordingly.
That is for instructional functions solely. Buying and selling comes with threat.
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Coming Up:
October 24: Benzinga Pre Present
October 26: Cheddar TV on the NYSE
October 27: Dwell in-studio with Charles Payne, Fox Enterprise
October 27: Dwell in-studio with Yahoo Finance!
October 27: Recorded in-studio with Investor’s Enterprise Every day
October 29-31: The Cash Present
Weekly: Enterprise First AM, CMC Markets
November 1–13 VACATION
S&P 500 (SPY): 417–420 supportRussell 2000 (IWM): 170 now within the rearview mirrorDow (DIA): 332 assist pivotalNasdaq (QQQ): 351 latest low and supportRegional Banks (KRE): 35 subsequent supportSemiconductors (SMH): 140 assist.Transportation (IYT): 225 pivotalBiotechnology (IBB): Below 120 so 110 space subsequent supportRetail (XRT): 57 key assist nonetheless
Mish Schneider
MarketGauge.com
Director of Buying and selling Analysis and Training
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