Stocks reverse while yields hammer out a bottom

Turnaround Tuesday strikes again! Stocks reversed course today and are up nearly 1.75% as the S&P 500 traded above yesterday’s highs, near 4328. Just as we have seen several times since the large index began forming the rising wedge in the fall of 2020, a large selloff one day as been followed by a larger positive move the next day. Today’s move resembles that of June 22^nd, when price reversed the previous day’s selloff and continued moving higher within the wedge. The key for the S&P 500 will be to see if the index can close back into the wedge and make new highs, just as it has been doing for the last 9 months. However, if the index fails and closes below the July 19^th lows and horizontal support, it can easily move to the June 21^st lows of 4252.75.

Source: Tradingview, City Index

S&P 500 trading guide

The candlestick formation on a daily chart of 10-year yields is a hammer formation, in which yields open near yesterday’s close, make a new low, and recover to close near the highs of the day. A hammer is a one candle reversal signal. The benchmark yields moved as lows as 1.129 today before reversing, as it struggles to hold a key level near horizontal support at 1.200 and the 38.2% Fibonacci retracement level from the March 9^th, 2020 lows to the March 30, 2021 highs near 1.227. Monday’s highs provide first resistance at 1.2900, ahead of horizontal resistance at 1.423. Support below Tuesday’s low is the 50% retracement level from the previously mentioned timeframe near 1.056 and then the psychological round number support level of 1.000. Notice that yields in a new low today while the RSI did not!

Source: Tradingview, City Index

Japanese candlestick cheatsheet

If the S&P 500 is going to continue to move higher, its going to have to take out trendline resistance and make new all-time highs. The hammer in yields confirms the move higher in stocks today. The question traders need to be asking right now is: What is the catalyst that will help stocks to continue to move higher and bonds move lower (yields higher)?

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