The SPX500 has charted a series of lower peaks followed by lower troughs on its weekly chart. This puts the weekly into a defined downtrend. Importantly, the down trend's trendline has shifted down from the green trendline to the orange trendline. This indicates that the downtrend is accelerating. It is not surprising to see the weekly RSI on the bearish side of 50 (green rectangle). The longer it maintains below 50, the greater the downside momentum pressure facing the SPX500.
We are also watching the black 30-week EMA. The SPX500's candlesticks are trading below it and the 30-week EMA has turned down, which is a bearish development.
Real Rate Effect
As the real yield (top chart) has risen, it has acted as a headwind for the SPX500 (lower chart). This is because higher yields pressure the present value of stocks, as per the time value of money. Moreover, lower risk and higher yielding instruments become more compelling compared with riskier assets such as stocks. This is turn sees a rotation of capital from stocks to the lower risk instruments, weighing on the SPX500.
Earnings are not wholly supportive either. Influential companies Tesla and Alphabet disappointed, with Ford missing Q3 expectations. Other companies like Meta have warned on guidance. If there is further significant weakness in earnings this may pressure the SPX500 further, whereas earnings beats will help support the index.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.