S&P 500 Faces Bigger Pullback as Yields and Oil Climb
Stocks finished the day lower, with the S&P 500 breaking the uptrend that had formed off the late-March lows. The next level of support for the index comes around the 10-day exponential moving average, which roughly aligns with the support level of 6,975—a level that had previously acted as resistance.
In the meantime, resistance at “C” in the megaphone pattern continues to hold. That’s notable, as a full resolution of the pattern would imply a move back to the lower boundary—potentially breaking below the recent March lows.
Given the market move—whether bullish or bearish—some degree of retracement would not be a surprise. Markets do not move in a straight line, and a pullback to the 38.2% or 61.8% levels would not be unusual. What is interesting here is how the 61.8% retracement level aligns with the gap from April 8 at 6,600.
Clearly, a breakout to the upside would be a significant positive catalyst, with the potential for the S&P 500 to move above 7,900. However, that outcome appears less likely than a pullback, given the current level of global uncertainty and Brent crude trading near $100.
Additionally, Kevin Warsh had his confirmation hearing today. While he spoke at length about lower rates, he also emphasized limited to no forward guidance, no Summary of Economic Projections, and a much smaller balance sheet. To me, that implies less liquidity and likely higher yields further out on the curve. How often has the Fed stepped in to support the market over the years? Now imagine a market left to work through things on its own. Right...
(More on Warsh: A Less Market-Friendly Fed Lies Ahead)
Rates did move higher on the day, likely driven more by oil than by Warsh. That said, rates are starting to take on a similar look to oil. The 10-year appears to be forming a bull flag, although resistance around 4.35% remains firm, and yields have not moved meaningfully in some time. The bigger concern comes just a few basis points higher, around 4.40%. A move through that level would likely mark a breakout from a multi-year consolidation phase and signal the start of a much larger move.
Clearly, oil would be the bigger driver of higher rates. Setting aside the news and focusing on the technicals, the charts suggest that Brent crude could move higher from current levels, assuming the intraday inverted head-and-shoulders and the larger falling wedge patterns continue to play out.
Meanwhile, gold is breaking down through its own bear flag today. The only question that remains is whether it falls through support at 4,670.
-Mike
Glossary by ChatGPT
Balance Sheet (Central Bank): The total assets and liabilities held by a central bank, often expanded or reduced to influence financial conditions.
Basis Points: A unit of measurement equal to 0.01%, commonly used to describe changes in interest rates or yields.
Bear Flag: A technical chart pattern indicating a continuation of a downward trend after a brief consolidation.
Breakout: A price move above resistance or below support that can signal the start of a new trend.
Bull Flag: A technical pattern suggesting continuation of an upward trend following a consolidation period.
Exponential Moving Average (EMA): A type of moving average that gives more weight to recent price data to better reflect current trends.
Falling Wedge: A bullish chart pattern characterized by converging downward-sloping trendlines, often signaling a potential reversal higher.
Forward Guidance: Communication from a central bank about the likely future path of monetary policy.
Inverted Head-and-Shoulders: A reversal chart pattern indicating a potential shift from a downtrend to an uptrend.
Liquidity: The ease with which assets can be bought or sold in the market without affecting their price.
Megaphone Pattern: A chart pattern with expanding price swings, often indicating increased volatility and uncertainty.
Retracement (Fibonacci): A temporary reversal in price movement, often measured using key Fibonacci levels such as 38.2% and 61.8%.
Support Level: A price level where buying interest is strong enough to prevent further declines.
Yield Curve: A graph showing interest rates across different maturities, often used to assess economic expectations.
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