Client Newsletter Example: Markets Continue to Hold Gains for Now - Reading the Technical Tea Leaves of the Major Indexes, Treasury Yields, and US Dollar

Published on November 20, 2023 @ 6:43am

Major indexes kicked off the new trading week a bit flat, with a slight bump in Treasury yields. Still, there are no real concerns or technical issues to suggest that these markets can't continue moving higher, despite any short-term whipsaws along the way. To determine what's next for these markets, here are the most important levels traders and investors need to pay attention to on the NASDAQ 100 (QQQ), S&P 500 (SPY), the US Dollar, and those all-important 10 and 30-Year Treasury Yields.

Markets Continue to Hold Gains for Now - Reading the Technical Tea Leaves of the Major Indexes, Treasury Yields, and US Dollar

All in all, it was another good week for all of the major indexes last week. As a matter of fact, last week's net move higher was very similar to the week before. And there's still nothing on the fundamental or technical front to suggest that these markets can't end up testing their all-time highs at some point this year or early next.

Of course, that could all change on a dime (as usual these days); however, based on what we're seeing now, any sort of market-wide pullback would merely suggest a decent enough buying opportunity rather than a selling one. It's more a matter of what to buy on a potential pullback than whether or not to buy at all.

Provided here are daily charts of our long-term suggested holdings in the NASDAQ 100 (QQQ) and S&P 500 (SPY). As you can see, their modest moves throughout the latter part of the week last week pretty much just dragged their 3X3 DMAs (dark blue curved lines) higher.

In other words, the bit of a breather that the major indexes took during the latter part of the week last week basically allowed some of their most important short-term moving averages to catch up a bit. That's a good thing, especially when it comes to instruments like QQQ and SPY that have been thrusting higher for three weeks now.

The bottom line is that if QQQ and SPY do end up coming back to their 3X3 DMAs, which now sit at $382 and $446, respectively, we're going to know pretty quickly if these markets are going to stage a bigger pullback or if they're simply going to continue moving sharply higher.

If Treasury yields and the US dollar are going to have anything to do with it, which, based on the correlation between them and the major indexes lately, should have something to do with it, the major indexes could be in for a potentially pivotal move soon. Again, not necessarily something that would trigger cause for concern, but at least enough of a potential pullback to keep bulls honest.

Provided here are weekly charts of the 10 and 30-Year Treasury Yields and the S&P US Dollar Futures Index. As you can see, I've pointed to their most important moving averages for traders and investors to pay close attention to over the next several days.

I'm referring to the 20-Week SMAs (orange curved lines) on both Treasury yields and the 25X5 DMA (green curved line) and 50-Week SMA (black curved line) on the S&P US Dollar Futures Index. Specifically, 4.37% on the 10-year yield, 4.49% on the 30-year yield, and roughly the 98.50 level on the Dollar Index we use here.

Keep in mind, these are weekly moving averages, so they have moved to start the new week, meaning the 4.46% level we continued to reference on the 30-year yield last week is no longer relevant. Now, it's far more about what happens around 4.49% on that 30-year yield than it is about that 4.46% level last week.

I'm assuming we're going to get to all of those above-mentioned levels on all of those various financial instruments soon enough. And depending on what happens around those levels is likely going to have a significant impact on what's next for the NASDAQ 100 and S&P 500.

In summary, if those Treasury yield levels are breached sharply to the downside, stocks are likely going sharply higher. However, should those Treasury yield levels hold and, more importantly, they start moving sharply higher, I suspect the NASDAQ 100 and S&P 500 are going to succumb to some short-term downward pressure.

Considering we're pretty darn close to all of the above right now, it's probably best to simply stick with what you/we have for the time being and then look to make some moves once those levels are achieved. Stay tuned. Despite this week being Thanksgiving week, I doubt these markets are just going to trade in a malaise throughout the week. We're far too close to certain key levels on your most important financial instruments out there right now for things to simply just continue to trade sideways.

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John Monroe - Senior Editor and Analyst