Reversal in Equities, US Dollar, Treasury yields all important

Near-term and intermediate-term technical trends remain bullish for US Equities, and Monday’s rally gave some much-needed confidence that SPX should push back to new highs over the next week, given above-average breadth and a drop in both the US Dollar and US Treasury yields. While August has proven quite negative seasonally speaking in post-election years since 1950, I don’t suspect much of the weakness gets underway until the August expiration. Overall, it’s technically right to favor that this SPX rally can continue into mid-August before any “stalling out,” and there should be a similar rally in Treasuries, Euro, and Yen vs. the US Dollar. While technical risks are certainly rising in recent weeks, it looks premature to concentrate on these at present as indices begin a climb back to new all-time highs and trends remain positive. My view is that this coming week could prove to be the most positive week of performance for August before some slowdown gets underway.     

Daily $SPX charts shown below illustrate the successful closing of the gap from late last week as market breadth expanded by more than a 4/1 ratio of Advancing vs. Declining issues. Volume also flowed into Advancing issues by more than a 4/1 ratio than declining and this represented a strong, much-needed rally following the late week selloff of last week.

I find it technically important that both US Dollar index ($DXY) and US 10-Year Treasury yields ($TNX) both made dramatic About-face reversals over the last two trading days, and this bodes well for US Equities to likely rally back to new highs as both yields and $DXY weaken.

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