The lack of a BOJ rate hike overnight has resulted in Treasury yields in both the US and many international developed markets pressing higher, and recent breakouts in Treasury yields coupled with negative momentum in equities likely results in some stalling out in this bounce early next week. In my view, the most important driver of equities in the short run will be the yield curve steepening and the rise in both absolute and real yields, which could spook the stock market. This remains a multi-year breakout for both ^TNX and ^TYX, and it looks to be pressuring metals and cryptocurrencies while taking the wind out of the sails of many US equity sectors outside of Technology. Overall, I feel a near-term defensive stance makes sense if short-term support at 7,400 gives way, as this likely could bring about another leg down for ^SPX which might last into mid-August.
^SPX: 7,400 is the key short-term trigger, and a break warns of another leg down into mid-August
Despite Friday’s bounce, I remain unconvinced that lows are officially in place for US equities on this recent consolidation, and this remains a trading environment, not one where chasing strength is apt to be rewarded.
As shown below, ^SPX’s gains are nearing the open gap from last week, which very well could prove important as resistance to this late-week bounce.
^SPX appears to have engineered a five-wave decline which has now yielded to a counter-trend bounce. If my thinking is correct, pushing back to new highs right away should prove extremely difficult.
With momentum still negatively sloped and no DeMark-related exhaustion signals in place at recent lows, this is an area where rallies should prove difficult to extend right away, and it would take a daily close back over 7,485 to help the technical picture begin to improve.
My technical thought process is that 7,400 is a key short-term technical trigger, and if broken, this would lead back down to test and break 7,313 en route to 7,223, or in more extreme cases, 7,122 and 7,059.
Overall, I feel a defensive stance is proper if/when 7,400 is broken, as this likely could bring about another leg down which might last into mid-August before a more durable low takes shape.
S&P 500 Index (^SPX, 15-minute) — Friday’s bounce has neared a resistance zone near the open gap as Treasury yields accelerate higher
Yen intervention likely proves temporary; USDJPY should take out 157.95 en route to 155
There is continued speculation of intervention to stem the losses in the Japanese yen, which saw a huge rally this week — or, as shown below, a big decline in USDJPY. According to Bloomberg, it’s estimated that Japan spent about $52.8 billion intervening in the currency market on Thursday.
However, my sense is that intervention likely will have only temporary success given the “disappointing” outcome of the BOJ meeting, where BOJ Governor Ueda did not deliver the rate hike despite the hawkish rhetoric. There was just one dissent in favor of a rate hike, which speaks to the broader message of their preferred “phased approach.”
In the short run, technicals favor another decline in USDJPY, which should take out this week’s lows of 157.95, and this could result in USDJPY dropping to 155.
U.S. Dollar / Japanese Yen (USDJPY, 2-hour) — Intervention-driven stabilization should prove short-lived before another decline to 155
2s/10s curve steepening following the FOMC remains the key cross-asset risk for equities
The 2s/10s Treasury yield curve continues to steepen out following this week’s FOMC meeting and the resulting upward pressure on long yields. As shown below, the spread has now pushed up through the downtrend in place since the late-2025 peaks to roughly 45 bp, a minor breakout which suggests this steepening likely has further to run.
Despite the ongoing backlash toward Warsh’s messaging, it’s important to see the bond market synthetically accomplishing the Fed’s job of tightening liquidity by causing long rates to rise.
A stabilization and/or slowing of this recent surge in long yields would likely prove beneficial for stocks, but until that happens, equities could very well stay choppy and rallies likely remain difficult to trust.
U.S. 2yr/10yr Treasury Yield Curve (USYC2Y10, daily) — Steepening has exceeded the downtrend from the late-2025 peaks following this week’s FOMC
Bitcoin’s break of trendline and Ichimoku support likely jump-starts a final move to new lows
Today has very likely jump-started the pullback back down to new lows for cryptocurrencies, as outsized losses across the space have caused many cryptocurrencies to pull back to multi-day lows, and many — such as Bitcoin, shown below — have broken support along with the minor trend which guided these higher over the last month.
As daily BTCUSD charts show, the uptrend was violated technically back on 7/24, but the minor choppy bounce attempt failed, and now price is pulling down to new lows for the week. Bitcoin has also undercut Ichimoku support — both the Conversion line and the Base line have been broken — which is negative and should drive Bitcoin lower. I see only minor support near 61,500–61,750 before selling pressure carries this down to $58k. Thereafter, a minor bounce might occur, but this should lead back lower over the next month, down to $50–$52k, technically speaking.
Overall, I suspect the “final” move of this selloff from last October is underway, and this should mark a low in the “crypto winter” bear market, likely in the next two months. Today’s acceleration indicates that this move is underway technically, and one should hold off on buying dips right away until this move has run its course.
Bitcoin / U.S. Dollar (BTCUSD, daily) — Violation of the uptrend from the July lows along with Ichimoku support argues for a final decline toward $50–$52k
Overall, the message across asset classes looks consistent: the BOJ’s gradualism has pushed global yields higher, the curve steepening is pressuring risk assets from metals to cryptocurrencies, and US equities have bounced but remain quite volatile, with sector rotation rampant. Until long rates begin to stall out a bit, it’s proper to stay patient rather than chase strength on this US equity bounce, and a defensive posture could be prudent into next week if ^SPX falls under 7,400. Stay tuned.
______________________________
PS: If you are enjoying our service and its evidence-based approach, please leave us a positive 5-star review on Google reviews —> Click here.