The market yesterday was clearly dominated by a reluctance to take risks in continuation of Tuesday's trends. The main question is whether we are talking about a change in long-term trends towards tightening financial conditions, or whether this is just a slight pause while the overall high risk appetite remains. Starting from Thursday and until next Friday (June 7), a large amount of macro data will be published that will determine further trends.
The CDX High-yield Credit Spread Index has risen, and as we noted the day before yesterday, it has room for further growth. Yesterday the index exceeded the downward trend line. This potential breakdown could lead to a significant widening of credit spreads.
Treasury yields also rose sharply, receiving additional support from a rather weak 7-year bond auction. The 10-year Treasury yield is again approaching the resistance area around 4.7%. The last time yields were at these levels, the S&P 500 was trading closer to 5,000, so further increases in yields would likely send the stock market lower.
Meanwhile, USD/CAD rose yesterday, rising again above the 1.37 area. The key level is now around 1.38. A break above 1.38 could signal risk aversion for the equity market, as this has been a key turning point for the pair in the past.
The situation could then become more interesting, mainly if a “rising wedge” forms on the chart, forming from February 2023. The support zone is between 5150 and 5200. From a long-term cycle perspective, it is time for a trend reversal. If the support of the pattern is broken, the trend may change faster than we expect.
The bears will be in the clear early today, with Salesforce (NYSE:CRM) shares down more than 16% following the release of its quarterly results. I haven't seen the report yet. The chart appears to have completed the formation of a giant descending triangle and has filled the November gap at $225.
