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Market Regime Charts – NDX Stocks Lead – Spreads Show no Stress – 10Yr Breaks Down

Posted By Arthur Hill, CMT On In Archive | No Comments

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Report Headlines

  • Zweig Breadth Thrust Remains Active (bullish)
  • 5/200 1% Cross for SPY Remains Active (bullish)
  • SPY and S&P 500 Breadth: Net Bearish since March 13th
  • QQQ  and Nasdaq 100 Breadth: Net Bullish since June 10th
  • RSP and S&P 1500 Breadth: Net Bearish since March 11th
  • Yield Spreads show No Stress in Credit Markets
  • Fed is Behind the Curve and On Hold
  • 10-yr Yield Reverses Short-term Upswing

Large Cap and NDX Stocks Lead - Mid and Small Caps Lag

The weight of the evidence remains mixed. Of the 15 signals on the first three charts, five are bullish and ten are bearish. SPY and QQQ are in long-term uptrends and Nasdaq 100 breadth is net bullish, but S&P 500 and S&P 1500 breadth remain bearish. Mid-caps and small-caps are still dragging their feet.

A Zweig Breadth Thrust triggered on April 24th and the SPY 5/200 %Differential exceeded 1% on May 12th. Yield spreads show no signs of stress. There are reasons to be bullish, as well as reasons to be wary. The key is to focus on the leaders and avoid the laggards. SPY, QQQ and Nasdaq 100 stocks are leading. Small-caps and mid-caps are lagging.

Technical Event Timeline

Zweig Breadth Thrust Remains Active

A Zweig Breadth Thrust triggered on April 24th and SPY also moved above the lower Keltner line (65,2,65). As laid out in this strategy report [2], the breadth thrust is bullish as long as SPY holds the lower Keltner line. Five consecutive closes below the lower Keltner line would negate the Zweig Breadth Thrust.  

5/200 1% Cross Remains Active (bullish)

The chart below show SPY with the 5-day SMA, the 200-day SMA and the Percentage difference between the two in the indicator window (Percent above MA(5,200,1). A bullish signal triggers when Percent above MA crosses above +1% (blue lines) and the bearish signal triggers with a cross below -1% (pink lines). As with all trend-following indicators and moving average crosses, there will be whipsaws (bad signals) and extended trends (good signals). The 5-day moved more than 1% above the 200-day SMA for a bullish trend signal on May 15th. This signal remains valid until the 5-day is more than 1% below the 200-day SMA. See this research report [4] on the 5/200 day SMA cross for SPY, QQQ, MDY and IJR.

This indicator is one of eleven in the TIP Indicator Edge plugin for StockCharts ACP. [5]

SPY and S&P 500 Breadth: Net Bearish since March 13th

SPY broke above the upper Bollinger Band to signal a long-term uptrend. Even so, the four breadth indicators remain bearish and have yet to reverse their signals from March-April. Currently, 54.4% of S&P 500 stocks are above their 200-day SMAs, which means 46.6% are below. A large portion of S&P 500 stocks are still in long-term uptrends. SPX %Above 200-day SMA needs to clear 60% for the vast majority to be in uptrend (bullish signal).

  • Bullish: SPY broke the upper Bollinger Band (125,1) on June 24th
  • Bearish: SPX %Above 200-day broke below 40% on March 12th
  • Bearish: SPX %Above 150-day broke below 30% on March 13th
  • Bearish: SPX %Above 100-day broke below 20% on April 4th
  • Bearish: SPX High-Low Percent Hit -10% on April 3rd

About the Major index ETFs and Breadth Signals

The top window on each breadth chart shows the corresponding major index ETF with Bollinger Bands (125,1). An uptrend signals when the ETF breaks above the upper Bollinger Band and a downtrend signals with a break below the lower band. The index ETFs are the S&P 500 SPDR (SPY), Nasdaq 100 ETF (QQQ) and S&P 500 EW ETF (RSP).

Each index has four breadth indicators. SPY uses S&P 500 breadth, QQQ uses Nasdaq 100 breadth and RSP uses S&P 1500 breadth.

  • The percentage of stocks above the 200-day SMA triggers bullish with a move above 60% and bearish with a move below 40%.
  • The percentage of stocks above their 150-day SMAs triggers bullish with a move above 70% and bearish with a move below 30%.
  • The percentage of stocks above their 100-day SMAs triggers bullish with a move above 80% and bearish with a move below 20%.
  • High-Low Percent triggers bullish with a move above +10% and bearish with a move below -10%. High-Low Percent is the percentage of stocks making 52-week highs less the percentage making 52-week lows.

These bullish/bearish signal thresholds are designed to identify significant changes in the stock market (bull market or bear market). As trend-following signals, they will lag and there will be whipsaws. Long-term, these signals keep us on the right side of the market. The idea is to be invested during bull markets (risk-on) and in cash during bear markets (risk-off).

QQQ  and Nasdaq 100 Breadth: Bullish since June 10th

No change. Four of the five indicators are bullish as Nasdaq 100 stocks continue to lead the market. Most recently, QQQ closed above the upper Bollinger Band and $NDX %Above 150-day broke above 70% on June 10th. Previously, NDX %Above 200-day SMA ($NDXA200R) exceeded 60% on May 12th and Nasdaq 100 High-Low% ($NDXHLP) hit +10% on May 27th.

  • Bullish: QQQ broke the upper Bollinger Band (125,1) on June 10th
  • Bullish: NDX %Above 200-day broke above 60% on May 13th
  • Bullish: NDX %Above 150-day broke above 70% on June 10th
  • Bearish: NDX %Above 100-day broke below 20% on April 4th
  • Bullish: NDX High-Low Percent Hit +10% on May 27th.

RSP and S&P 1500 Breadth: Bearish since March 11th.

Weakness in mid-caps and small-caps is why the weight of the evidence remains bearish for stocks. Fewer than 50% of S&P 1500 stocks are above their 200-day and 150-day SMAs. All five indicators for RSP and the S&P 1500 triggered bearish in early-mid March and they have yet to reverse these bearish signals.

  • Bearish: RSP broke the lower Bollinger Band (125,1) on March 4th
  • Bearish: S&P 1500 %Above 200-day broke below 40% on March 11th
  • Bearish: S&P 1500 %Above 150-day broke below 30% on March 11th
  • Bearish: S&P 1500 %Above 100-day broke below 20% on March 11th
  • Bearish: S&P 1500 High-Low Percent broke below -10% on March 4th

Yield Spreads Fall back to March Levels

No change. The chart below shows SPY, the Junk Bond Spread ($$HYIOAS) and the BBB Bond Spread ($$BBBOAS). Yield spreads narrowed as stocks advanced from early April to June. The Junk Spread is back to its 200-day SMA and the BBB spread is below its 200-day SMA. This narrowing shows confidence in the credit markets and is bullish for stocks. The pink lines mark levels to watch for an upturn (widening) that would be negative for stocks (3.5 on the Junk Spread and 1.25 on the BBB spread).   

The yield spread is the difference between the Junk Bond Yield or BBB Bond Yield and a comparable Treasury Bond Yield. Junk and BBB bonds represent risk assets, while Treasuries represent relative safe-havens. The spread is the risk premium for holding the riskier assets. Narrow/narrowing spreads show confidence and this is bullish for stocks. Wide/widening spreads show stress and this is negative for stocks.

Fed on Hold and Behind

Fed policy is not an issue for large-caps and tech stocks, but the Fed is behind the curve and this could be weighing on small-caps, mid-caps and cyclical stocks. The top window shows the Fed Funds Target Rate ($$FEDTGT) and the 2-yr Treasury Yield ($UST2Y). $UST2Y typically leads the Fed Funds Rate. Notice how $UST2Y turned up in late 2021, well ahead of the tightening cycle. Also notice how it turned down in summer 2024, ahead of the easing cycle. $UST2Y remains below the Fed Funds Target Rate and this suggests that the Fed is behind the curve, which is actually normal.

No change. The 3-month Treasury Yield ($UST3M) continues to trade with a tight range, signaling that the Fed is on hold. A breakout at 4.5% would argue for a more hawkish Fed, while a break below 4.2% would argue for a move dovish Fed.

The middle window shows the 3-month Treasury Yield ($UST3M), which also tends to lead the Fed. $UST3M has been range bound between 4 and 4.5 percent for 2025, which means the Fed is on hold. A break from this range will provide the next directional clue for the Fed.

Several factors influence short-term Treasury yields, but they are still closely aligned with Fed policy and often lead the Fed. This means the yield often peaks (troughs) and turns down (up) before the Fed starts to lower (raise) rates. We use the 3-month Treasury yield to identify current Fed policy and anticipate the next Fed move

10-yr Yield Reverses Upswing

The next chart shows the 10-yr Treasury Yield ($UST10Y) as a line plot to filter out some of the noise. I started with a clean chart (no annotations) and came up with the following. First, there is a long-term downward bias with a lower high and lower low sequence over the last two years (pink dashed lines). Second, $UST10Y broke down in February and extended to 4% in April. Third, the April-May bounce formed a rising wedge and lower high, making this a counter-trend bounce. $UST10Y broke down this week with a move below 4.35%. Re-evaluation resistance is at 4.55 (June high plus a buffer).

The 10-yr Treasury Yield is the most important benchmark for long-term rates and mortgages. The bottom window in the chart above shows $UST10Y with the EW Consumer Discretionary ETF (RSPD). Several factors influence long-term Treasury yields: growth expectations, inflation expectations, government debt levels, tariffs and foreign bond holders. The 10-yr Treasury Yield typically falls when the economic outlook dims and/or inflation expectations rise. Conversely, the yield typically rises when the economic outlook is bright and/or inflation expectations fall.

Thanks for tuning in and have a great day!