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Is This the Beginning of a Trend Reversal? Watch These Indicators for Clues

Published 05/30/2024, 02:43 AM

Sentiment was undoubtedly in a risk-off mood on Wednesday across the market, following the trends on Tuesday. The bigger question is whether this is the start of a shift in longer-term trends towards tighter financial conditions or a little pause in an otherwise risk-on market. Starting yesterday and running into next Friday, June 7, there will be a lot of data that will determine where the trends go from here.

The CDX high-yield credit spread index rose, and as noted day before yesterday, the trend appears favorable to its further rise. If yesterday’s move marks a breakout of that index, with it popping above the downtrend, that could be important, as it could lead to a significant widening of credit spreads.

CDX High Yield Index-Daily Chart

Treasury rates were also sharply higher on the day and got an extra boost following a pretty tepid 7-year Treasury auction. The 10-year is approaching that resistance region around 4.7% again, and the last time the 10-year rate was here, the S&P 500 was trading closer to 5,000, so a continued gain in rates would likely push equity markets lower.US 10-Year Yield-Daily Chart

Meanwhile, the USD/CAD moved higher yesterday and has moved back above the 1.37 region. The big level we are watching here is the 1.38 area. A break above 1.38 could be a big risk-off signal for equities, as that has been a key level in the past for the USD/CAD.

USD/CAD-Daily Chart

Meanwhile, the S&P 500 closed down around 75 bps, and at the same level, it was on the day of the big bearish engulfing candle. There is support at 5,260, so for this sell-off to have any legs, the S&P 500 will need to gap lower yesterday at the open and undercut that support level, which can set up a test of 5,200.S&P 500-1-Hour Chart

Things could get more interesting at that point, mainly if a rising wedge has formed in the S&P 500 since February 2023. The zone of support is in the 5,150 to 5,200 region. Indeed, from a longer-term cycle standpoint, the time has come for a trend reversal, and if support breaks on the pattern, that trend change could be here sooner than we may think.SPX-Daily Chart

The bears certainly have the ball in their court to start the day, with Salesforce (NYSE:CRM) trading lower by more than 16% following its results. I haven’t had the time to look at those results, though. The stock appears to have completed a giant descending triangle and has now filled a gap from November around $225.Salesforce-4-Hour Chart

There will be a lot of data starting today, so we must monitor the data to determine where the charts are likely to go.

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