The Canary in the Silicon Mine

October 8, 2023

Weekly Market Outlook

By Keith Schneider

US equity markets were under extreme pressure in September and part of August as the Fed has been relentless in trying to bring inflation down. The jump in interest rates has been extreme, ranking as one of the biggest moves in rates ever, something equity markets are not particularly fond of.

Right now, both the Dow and the IWM have negative TSI (Trend Strength Indicator) rankings, which is a risk-off indication. On the flip side, the S&P 500 just had a convincing bounce off its 200-day moving average.

Mortgage rates went from a low of 2.25% to over 7% in 2 1/2 years’ time, with US long bonds dropping more than 50% in value from their highs set in March of 2020. The rate of change has been historic.

Markets have now moved from “cash is trash “to cash is NOT trash” with T-bills being an attractive investment as short-term rates now are higher than the inflation rate by over 1%. According to Ray Dalio, investors will be inclined to move money out of equities to short-term fixed income.

Meanwhile, we had an important Jobs (Non-Farm Payrolls) report on Friday that was much stronger than expected. After the initial reaction, which was a lower open (down about 1%) equity markets rebounded and closed up over 1% for the SPY and almost 2% for Nasdaq 100.

Equity markets might have shrugged off the strong jobs report on Friday, but the long bond (TLT) did not, closing down over 1% while short-term rates eased. This reduced the yield curve inversion which is seen as the next step for indicating a recession is coming. The yield curve inverts first and then heads back closer to normal before a recession hits.

Now getting back to the Canary in the Silicon mine, one of the key themes over the past 7 trading days has been that Semiconductors have held up well showing leadership over benchmarks. Semis are a risk-on indicator and when they lead the markets it is considered a positive for stocks in general. Also noteworthy, the outperformance was on good volume, so it is not to be dismissed.

The question is… Can this rally hold or is this a temporary relief rally amid the longer-term down wave as we highlighted last week?   Is the fact that Semis and growth stocks in general (VUG) are leading this bounce indicative of even more strength and a push to new highs?”

In this week’s video, we play out a few different scenarios.




  • The market ended the week with a strong Friday in which all 4 key US indices rallied powered by mean reversion from oversold levels. (+)
  • The Nasdaq (QQQ) closed at its highest level in almost 3 weeks and it also closed above its 6-month calendar range low. (+)
  • The S&P500 (SPY) closed above its 10-day moving average for the first time in about 3 weeks. (+)
  • Even though most of the major market sectors were down on the week, the two big ones that were positive were the speculative sectors Technology (XLK) and Semiconductors (SMH). (+)
  • The McClellan Oscillator and other market internals are bouncing off of oversold levels for both the S&P500 (SPY) and the Nasdaq Composite ($COMPX). (+)
  • Risk Gauges are back to 100% risk-on. (+)
  • There was a big flip on Friday for the Volatility Ratio which switched from oversold to a positive on the short-term. (+)
  • The number of stocks above key moving averages flipped positive from oversold levels (short term) that we highlighted last week in both the S&P500 (SPY) and Russell 2000 (IWM). (+)
  • Value stocks (VTV) lost their leadership on a short-term basis while Growth stocks (VUG) continue to outperform relative to the S&P500. (+)
  • The price performance of Semiconductors (SMH) relative to the benchmark is extremely strong and on good volume. (+)


  • The Dow (DIA) and Russell (IWM) now have negative Trend Strength (TSI) and are in distribution phases, while both SPY and QQQ are not far from having negative TSI themselves. (-)
  • Market internals based on the New High / New Low ratio for both the S&P500 (SPY) and Nasdaq Composite ($COMPX) remain in bear territory, although it is oversold. (-)


  • Volume patterns improved to closer to neutral readings with the Nasdaq now showing more accumulation days than distribution over the past 2 weeks, however, the Russel (IWM) is still looking weak. (=)
  • There is a confused picture of Energy with Natural Gas (UNG) flying and all other major energy sectors falling including Solar (TAN), Oil (USO), and Clean Energy (PBW). (=)
  • The long end of the Yield Curve from 7-10 years to 20 Yrs.(TLT) remains under extreme pressure, however, TLT is oversold on both price and momentum according to Real Motion and may be subject to a bit of mean reversion. (=)
  • Copper (COPX) put in a new multi-month low, however, it is in the process of reverting from the bottom of its long-term trading range. (=)
  • The Gold market (GLD) got extremely oversold and is looking to bounce off of its 200-week moving average. (=)
  • Oil (USO) broke down below its 50-day moving average for the first time since early July, however, the slope of the 50-day moving average is very strong so it could easily recover and retest the highs. (=)

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