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What to Watch as Intermarket Relationships Change


Bond yields and the dollar are no longer moving in tandem.


Summary of Yesterday's Notable Technical Developments

Bonds gapped higher and held onto their gains. Yield on the benchmark 10-year settled at 3.65% and is approaching support at 3.60%. At these levels, rates are squarely in the middle of their range (3.20% - 4%) since early May. The next big move should be higher to the upper end of that range.

Stocks gapped lower and finished down a little more than 1% after being down nearly 2% earlier in the session. Volume was down slightly and the negative breadth wasn't extreme. Banks bucked the trend, as the BKX was up 1.4%. Semiconductors held up, too, with SOX losing just 0.30%.

Commodities were hit hard and couldn't muster much of a rally, with the DBC closing down by nearly 2%. At 24.07, it's just above support and at its lowest level in four weeks.

The US Dollar Index
put in another strong day finishing up more than 1% and closing just above resistance. This sets up the DXY to test our target around 80.

Changing Intermarket Relationships? (UUP, $SPX.X, DBC, and TLT) (130-minute chart):

Click to enlarge

  • There's been a noticeable, albeit slight change in the intermarket relationships we've grown accustomed to over the last year or so.

  • Instead of bond yields and the dollar moving in tandem, the last week has delivered lower yields and dollar strength.

  • It appears that the flight-to-safety trade is "on". Keep an eye on this development as it appears the currency and bond markets may be forecasting further weakness in commodities and a break in stocks. Monitor daily closing support on the S&P. A break of it will be an early clue.

Market Internals: NYSE
(Figures are rounded)

Critical Market Components (with ETF proxies):

S&P 500 (SPY): Significant resistance remains at 1146 on a monthly closing basis. Support for the S&P is just below yesterday's close at the short-term uptrend line at approximately 1136 - 1137. Longer-term support is at the 75-day moving average near 1100. The SPY has corresponding support levels of 113.50 and 109.81 and resistance comes in right at current levels at 115.08.

NASDAQ (QQQQ): Critical monthly support for the NASDAQ remains at 2271. Resistance for the NASDAQ is 2331 (March 2007 lows) and 2340. The QQQQs have support at 45.00 - 45.75 and resistance in the 48 area.

Dow Jones Industrials (DIA): Support remains at the breakout point of 10,507 with 10,450 providing additional support below that; resistance comes into play at 11,000. For the DIA, resistance comes in at 111; initial support is at 105.

10-Year US Treasury Yield (TLT used here as a proxy for longer-dated bonds): Resistance for rates on the 10-year Treasury continues to be the 3.80% to 3.90% range and initial support is at 3.60%. The extreme levels on the 10-year yield translate to support for TLT at 87.56 and resistance at 91.31.

Commodity ETF (DBC): The DBC now has resistance at 25 and support (which was tested yesterday) just below current levels at 24.

US Dollar Index (DXY and UUP): The DXY continues to have important support at 76.73. Short-term resistance was broken at 78.33 and now the greenback has designs on making a run up to around 80. The support for UUP, the ETF proxy for a rising dollar, is at 22.65, while 23.20 (Wednesday's close) is first resistance.

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No positions in stocks mentioned.

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