Treasury yields spiked today with the 10 year reaching 5.135%, its highest level since 2007. While oil did gain about 2.5% today, it's down around 10% over the past week, so yields were not reacting to the move in oil today. Yields moved on Fed Governor Michael Barr's comments today about needing further policy adjustments, indicating that more rate hikes are coming. Odds have increased to about 66% for another 25bps rate hike at the next meeting on October 28th.
With the sharp rise in yields today, the rate sensitive Russell 2000 got hit hard again as it underperformed the rest of markets with a loss of 1.77%. However the rest of markets were also weak with the Nasdaq closing down 1.13% while the S&P lost 0.75% and all of the indexes finished near the lows of day. The VIX gained nearly 7% on today's market sell-off, settling at $15.18. Tomorrow will be the first day of the Trump-Xi summit so we'll likely be getting lots of headlines on trade, semis/AI, and potentially Iran.
Yesterday I wrote about this pullback that was likely coming and I took a short position in QQQ which I booked profits on this morning. As I mentioned in the last couple of updates, the Nasdaq would not be able to continue to trade in its parabolic uptrend for very long. It broke and closed below that uptrend today and it was a pretty strong breakdown. However, it still starts a new uptrend as it did make higher highs yesterday. For tomorrow if there's a snap back rally, which I don't believe there will be, the only resistance level to watch will be from its previous uptrend (green) which it closed below today and its new primary uptrend (white) at 27,400-27,425 where these 2 trends intersect.
On a continuation of the pullback, which I believe is the more likely scenario here, the next support to watch will still be from its prior downtrend (blue) at 26,575-26,600. If it breaks through it, the next support to watch will be from its next downtrend (orange) around 26,375 and the last support to watch will be at 26,150-26,175 from its primary uptrend (white).
The S&P gapped just below yesterday's primary uptrend at 7,765-7,766, opening at 7,761.94 which was also the high of day. It also closed well below support, however it still starts a new uptrend for now. But, it will also likely open below this new primary uptrend (white) tomorrow which will be around 7,748 - that is well above today's close of 7,706. If it were to get a gap back over this level, then it would become support and the next resistances to watch would be at about 7,817 (green) and then 7,842 (yellow). However, this scenario is unlikely.
The more likely scenario is that the S&P opens below its primary uptrend support at 7,748 and we get another pullback in which case the next support to watch will be from its prior uptrend (orange) at 7,629-7,630. If that doesn't hold, the last support for tomorrow will likely be from its sideways range (purple) at about 7,590. Assuming the S&P does open flat/lower tomorrow then on a bounce attempt the 7,725 area would be the first resistance to watch (yellow) followed by 7,747-7,748 from both its prior uptrend (orange) and new primary uptrend (white).
The Russell 2000 continues to trade down within its big primary downtrend so it doesn't start any new trends again. It did however invalidate one of its previous trends, so now there are only 2 to look at. First, we'll look at resistance. Its primary downtrend (white) is the only resistance level to watch at 2,920-2,925 tomorrow if there was a big rally back - again this scenario is unlikely in my opinion.
On a continuation of the pullback, the first support to watch will be from its previous downtrend (purple) at 2,819-2,820. If it doesn't hold, the bottom of this same range would be the next support at about 2,765. After that, its primary downtrend (white - bottom of the range) would be the last support at about 2,740.
