With 10y yield retreating back to 4.20%, stocks had an easier time retracing Friday‘s hit, and then some. No technically important level had been breached on a closing basis (neither 4,447, nor 4,465), and in spite of the improving breadth powered by financials, materials and industrials with tech not lagging behind, I‘m looking for deterioration to start today. Volume had been drying up on the upswing, so I would disregard the advance-decline line or volume, and listen rather to the barely improving equal weighted index, retail (XRT) or Russell 2000 troubles.

Cyclicals aren‘t going to have such a bright day today – and the reasons would be beyond financials checking upon the daily rise in yields. See the balance of outstanding loans in Bank Term Funding Program if in doubt whether high yields or collateral deterioration is biting or not.

The optimistic S&P 500 valuation at roughly 18 times forward earnings, has quite a serious competitor in Treasuries yielding handsomely, for quite a while. The retreat in stocks isn‘t yet complete, and the coming JOLTS wouldn‘t paint a picture of economic acceleration.

Yet the very expansive fiscal policy (deficits as if we were in a recession already) is keeping in check the restrictive monetary one, but the speed with which various China moves from halving stamp duty on stocks to buying by funds and state enterprises is dialed back, speaks volumes about risks to the downside.

Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 2 of them.

S&P 500 and Nasdaq Outlook

4,447 may be still tested shortly after the open, but I‘m looking for financials to lead to the downside. Tech would decide whether 4,415 gets reached today or not, and would lack beehind cyclicals in all likelihood. The theme is one of upside rejection and more selling taking over this week.

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