S&P 500: Double Top Under the Surface Improvement
On the surface the S&P 500 has spent nearly three months forming a possible double top. Longer-term neckline support sits around 7600. The measured target of this pattern points down to the summer lows at the 200-day moving average near 7300. Today price looks to be breaking through near-term support around 7620 and then through that longer-term support. If the gap stays unfilled, more decline can follow.
Beneath the surface, rotation and breadth have improved a lot. The share of S&P 500 stocks trading above their 200-day moving average has climbed above 60%. The last two times this breadth measure hit that level were February, right before the market topped and corrected, and the summer consolidation highs, which led to a further leg higher and even wider breadth.
The McClellan oscillator, a breadth momentum tool that tracks the speed and direction of daily change in market breadth, pushed to overbought above 100 as of yesterday and is now curving back below that line. This can mean the market is stretched. It can also mark a bullish divergence, since breadth has reached new highs while the index has not. Right now the signal needs more confirmation from inner-market readings before it settles either way.
10-Year Yield: Head and Shoulders Break
The 10-year yield traded around 5% earlier in the week and sits at 4.93% now, back to levels from a couple of months ago. It found longer-term support over the past month and pulled back to it. On the 9-month daily chart the yield built a head and shoulders top and broke through the neckline today. Neckline support near 4.95% now turns into resistance. Classic charting gives a measured target down to 4.52%, roughly at the 200-day moving average. These targets are not guaranteed, and such patterns fail often.
A failed breakdown looks more likely here because the uptrend is still intact. The 50-day moving average that price just broke through is still sloping up, and when that happens the average is usually reclaimed within a few days. MACD momentum has been fading to the downside over the past week. If yields break back above the neckline, that failed breakdown would be bullish for yields and could send ripple and volatility effects through equity markets, where some volatility measures are already starting to spread.
GOOGL: Death Cross After Earnings
Google parent Alphabet (GOOGL) had its worst day in history yesterday and triggered a death cross. Technology and communication services still show relative weakness against the S&P 500. Communication services is hitting more than two-year relative lows versus the index, so there is heavy deterioration in that group.
A death cross happens when a shorter-term moving average crosses below a longer-term one. After Wednesday's earnings, GOOGL gapped below near-term support around the former July lows near 317. That full gap, now acting as resistance, runs between 288 and 317. Death crosses tend to lag, since the 50-day moving average covers about three months and the 200-day about nine months, so they often mark the start of a bottoming process rather than fresh downside.
After the earnings reaction, price found a logical longer-term support near its yearly lows, a level tested during the March correction. The RSI momentum indicator is now reaching oversold, much like it did back then. Today's price action is forming a doji, a pause or indecision candle that can precede a reversal. Given the weakness and the long-term levels reached, buyers may step in at these weak levels for a possible mean-reversion trade. Traders likely want to see how fast these gaps get filled, if at all, since that tells more about the trend. If the gaps stay open, the next longer-term support for GOOGL sits down around 205.
