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15 Aug 2013
S&P 500 correcting, but targets 2% - 4% higher still in play
FXstreet.com (Barcelona) - The talk of Fed “tapering” is weighing on US stocks once again. Unlike the tapering-related June/July 7%+ sell-off, though, the current pullback has been very mild – and thus bullish (so far). Upside possible, if not likely in stocks, yields and the DXY in the short-term.
Are equities getting used to the prospect of tapering?
The equity markets may be growing more comfortable with the idea of the FOMC tapering down its monthly bond-buying program – and perhaps more importantly with the forces that are emboldening the Fed to taper. Back in June when various Fed Heads were out warning of tapering soon to come, the equity markets basically threw a “taper tantrum” – selling off by more than 7% in about a month.
At the time, Treasury yields had spiked from 1.625% to 2.725% and the US Dollar had rallied from 81.33 to 84.50. Since that peak, Yields have drifted lower, but only very mildly – echoing the very modest pullback in stocks. The US Dollar Index, meanwhile, reacted to volatile fluctuations in the relative strength in the euro and Yen (among other majors) and fell all the way to new lows just above 80 before ramping up to the pre-Bernanke peak at 84.75. Once Ben came out with his dovish comments in early July, though, the DXY came plummeting back down to very near the lows at 80 once again. So far, those lows have held and technicians are starting to call for another tapering-related ramp that should take the DXY up to (and possibly beyond) the highs near 85. It will be very hard for the DXY not to make new short-term highs if the Treasury yields manage to break out above their 2.725% resistance level. If that breakout does not occur, however, the DXY will likely remain range-bound and at the mercy of the movements in the Yen and the euro.
Stocks, if they move up to new highs and test projected upside targets at 1,714 – 1,747 (for the S&P futures), will almost certainly be doing so in conjunction with yields breaking out along with the DXY. However, several technicians are calling for the equity rally to stall out at the upside target range and for a substantial downside corrective move to play out afterward. Might that mean a corresponding drop in yields and the DXY? Right now, that’s exactly what the technicians are anticipating.
Summary of technician’s prognostications
So, to sum up, technicians are still anticipating a move up through resistance in the S&P 500, Treasury yields and in the DXY. But, once upside targets are reached in stocks, they say a simultaneous move lower in stocks, yields and the DXY may likely occur.
Are equities getting used to the prospect of tapering?
The equity markets may be growing more comfortable with the idea of the FOMC tapering down its monthly bond-buying program – and perhaps more importantly with the forces that are emboldening the Fed to taper. Back in June when various Fed Heads were out warning of tapering soon to come, the equity markets basically threw a “taper tantrum” – selling off by more than 7% in about a month.
At the time, Treasury yields had spiked from 1.625% to 2.725% and the US Dollar had rallied from 81.33 to 84.50. Since that peak, Yields have drifted lower, but only very mildly – echoing the very modest pullback in stocks. The US Dollar Index, meanwhile, reacted to volatile fluctuations in the relative strength in the euro and Yen (among other majors) and fell all the way to new lows just above 80 before ramping up to the pre-Bernanke peak at 84.75. Once Ben came out with his dovish comments in early July, though, the DXY came plummeting back down to very near the lows at 80 once again. So far, those lows have held and technicians are starting to call for another tapering-related ramp that should take the DXY up to (and possibly beyond) the highs near 85. It will be very hard for the DXY not to make new short-term highs if the Treasury yields manage to break out above their 2.725% resistance level. If that breakout does not occur, however, the DXY will likely remain range-bound and at the mercy of the movements in the Yen and the euro.
Stocks, if they move up to new highs and test projected upside targets at 1,714 – 1,747 (for the S&P futures), will almost certainly be doing so in conjunction with yields breaking out along with the DXY. However, several technicians are calling for the equity rally to stall out at the upside target range and for a substantial downside corrective move to play out afterward. Might that mean a corresponding drop in yields and the DXY? Right now, that’s exactly what the technicians are anticipating.
Summary of technician’s prognostications
So, to sum up, technicians are still anticipating a move up through resistance in the S&P 500, Treasury yields and in the DXY. But, once upside targets are reached in stocks, they say a simultaneous move lower in stocks, yields and the DXY may likely occur.