The TEV pattern on the S&P500 Futures is still in a downtrend.
But we can see below that the 20DMF has stabilized and is still in positive territory.
We can also see that the technology sector that had been a leading sector in weakness is now at oversold levels where past reversals have taken place. This of course doesn't mean that a reversal is going to take place on Monday, but we seem to be close to a bottom here.
On the other hand, the NHNL indicator does not show panic levels that we witnessed at previous bottoms (shown with the Red circles). We seem to be similar to a pattern that occured at an intermediate bounce (Blue circle): the NHNL indicator displayed a higher low while the market seemed to be in a sideway uncertainty.
On the interest rates side, we can see that the 10Y yields continues to move higher.
The Five Years view displays an overstretched situation for the 10Y Yields which seems to have been increasing too high too fast.
The most important Figure is probably the differential between the corporate bonds yield and the 10Y yield. A bounce might indicate that investors are afraid of corporate bonds - hence selling bonds to buy Treasuries, but since the 10Y rates continue to increase, I feel that we are witnessing a pause in the money migration from US Treasuries to the 10Y corporate bonds. This hence would mean a peak in the 10Y Treasury yields and hence probably a relief rally for equities.
How far can the equities bounce before becoming overvalued?
When the differential between the corporate bonds and the Treasuries yield was 0.88% a few days ago, the equities overvaluation level was at a S&P500 of $5350 or a 10Y rate at 3.62%
Now, with the differential having bounced to 1.07%, the overvaluation level has shrunk to $ 5100 on the S&P500 or 3.43% on the 10Y rate.
But, if the differential were to bounce back to 1.52%, then - not shown here though - the S&P500 would be overvalued already at $4650. Hence, the upside on the S&P500 could be limited.
Conclusions:
I believe that the 10Y Yields have reached a temporary peak and that will serve as a pretext to bounce the equities markets, especially in the tech sector.
However, the upside seems limited.
This is the link where I follow the rate differential.
https://fred.stlouisfed.org/series/AAA10Y
