"Shot across the Bow" looks important for Crude, Treasuries, VIX and likely Equities

Near-term trends are being tested after SPX’s break of 6700 on Friday, and any violation of late September lows of 6569 should result in the start of the anticipated 5% correction into November.  Intermediate-term technical trends remain bullish for US Equities, and despite some of the sector bifurcation, I don’t expect that any selloff proves long-lasting before a rally back to new highs gets underway.  Treasury yields and WTI Crude oil look to be turning sharply lower as of Friday, and both should continue down into November. Meanwhile, the VIX has risen back over 20, and this should mark the start of an eventual move back to 30 by November, before Equities lift into year-end.  While the near-term uptrend for SPX from June at this time is intact, the trends for both WTI Crude and Treasury yields have made more technically important breakdowns.  Regardless if SPX can bounce next week into 6800, I suspect that Friday’s deterioration caused some further waning in breadth and momentum that likely will give way to a Fall selloff.  As mentioned in recent days, it’s important to remain vigilant as some cross-asset volatility has begun, which likely persists over the next month. 

Needless to say, Friday’s sudden about-face wasn’t expected by me nor global markets right away, which appear to have been caught off-guard by signs of a possible prolonged trade war with China.  Implied volatility spiked while Treasuries surged, and both the US Dollar and Emerging markets pulled back sharply, given China’s equity market weakness.

I’ve been expecting that a US equity selloff could happen between mid-October and mid-November of this year given factors such as waning breadth, sector weakness in non-Technology, rising positioning and sentiment within the US Equity market. 

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