We can see below that the small caps and materials/energy sectors did much better than the rest of the market in general.
Weakness concentrated in the tech sectors, but the leading NQ8 and ARKK did also rather poorly yesterday.
Interesting to see that the ratio of the sectors on a short wait mode pushed below the 50% level. this indicator is now close to issuing a short signal. On the other hand, this is a level where reversals frequently take place.
The 10Y rates pushed higher yesterday. This is somewhat strange, especially considering that the Fed provided about 100B$ more of Treasuries in their overnight repo operations.
Also, we can see below that the NHNL displayed a slight positive divergence to the $SPX (The price fell much stronger compared to the NHNL level). This does NOT point to a reversal. It points to the fact that funds are adjusting their long positions across the board, by selling their long tech/mammoth positions while covering their small caps shorts. As a consequence, there were more companies being bought than the price sell off might have suggested. It is a mechanical activity. It is not the sign of a reversal. A reversal would occur on a stronger sell-all panic move, with the NHNL dropping much lower.
Conclusions:
There is a change of sentiment of the market with a rush back into commodities or safe assets in general.
I however believe that the market will anticipate a political settlement, but will be closely watching whether the Fed will be able to put a lid on rates by increasing again its reverse repo operations. These operations also push the US$ higher as they suck liquidity out of the markets.
The $SPX might test its $4300 intraday low before a reversal, but the issue is mostly political for now. The debt ceiling time limit of October 18th is just after the Monthly options expiration of October 15th. This means that a last minute deal might be reached during the options expiration week. This also means that the market still has space/time to continue weakening.
