Stocks Fail To Breach Critical Resistance Levels
The S&P 500 recovered from a steep morning decline to finish down just 16 basis points. The key takeaway, however, is that the index once again touched the 20-day moving average and failed to close above it. It also reached the 10-day exponential moving average and closed below it.
It’s worth noting that the S&P 500 hasn’t traded below both the 20-day and 10-day moving averages for three consecutive days in quite some time. This could suggest that a potential change in trend is developing—something that warrants close attention.
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Additionally, the index reached the 61.8% retracement level today but failed to move beyond it. With OPEX this week and the put wall firmly established at 6,500, it wouldn’t be surprising to see that level tested before the end of the week.
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We also saw implied correlations rise while dispersion declined, narrowing the spread between the three-month implied correlation and dispersion indices. Historically, when that spread begins to narrow, the S&P 500 tends to follow lower. We’ll need to monitor how this relationship evolves in the coming days.
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One development that may have gone somewhat unnoticed today—given the market’s focus on rate cuts and trade headlines—is that Chair Powell signaled the end of quantitative tightening could be approaching. That’s a meaningful shift, as we’ve recently seen rising overnight repo stress while SOFR swap spreads have remained deeply depressed. Today, however, those SOFR swap spreads began to turn less negative. This will be an important trend to watch as the market starts to anticipate the eventual end of QT.
While there isn’t a perfect relationship between SOFR swap spreads and high-yield credit spreads, there is a mild correlation. This suggests that if SOFR swap spreads begin to rise, we could also see high-yield and other credit spreads widen as well.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. ...
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