US LNG exports surge but will buyers in China turn up?
The S&P 500 opened on Thursday about 60 basis points higher, but those gains quickly evaporated, and the market closed down roughly eight basis points. The key technical challenge emerging now is the market’s inability to break through the 61.8% Fibonacci retracement level. We briefly reached the 78.6% retracement level before pulling back and settling near 61.8%.
This pattern raises the possibility of a trend change. It’s not unusual for markets to retrace 61.8% or 78.6% of a move before reversing, but confirmation is needed before turning decisively bullish or bearish. From a bearish perspective, the clearest confirmation would be a break below the 6,200 support level in the coming days. That would strongly indicate a potential turning point for the S&P 500.
My bearish lean stems from last week’s discussion of the bearish engulfing candle on the weekly chart, which appeared on solid volume. Historically, these setups have preceded meaningful pullbacks. While the S&P 500 is up about 1.6% this week, nothing has occurred to invalidate the candle. If the market rallies sharply and closes above 6,400, the bearish case would be negated, and the outlook would need to be reassessed. For now, 6,400 serves as the bearish invalidation level, while a break of 6,200 would validate the bearish scenario.
Overall, the market’s inability to mount a strong rally suggests this is more of a retracement than an impulsive move higher. The equal-weight index (RSP) has been in more of a downtrend, underscoring that gains are concentrated in a small group of mega-cap names. When overlaid with the SPY, the divergence becomes clear.
Breadth indicators confirm this weakening backdrop. While I don’t often focus on breadth due to its lagging nature and inherent noise, the past two days have shown negative readings. The New York McClellan Oscillator has been negative since mid-July, and the Summation Index has turned lower, currently at 548. A move below 500 would reinforce the case for market exhaustion and potential downturn.
Liquidity trends are also important here. The IWM (Russell 2000 ETF) has lagged, struggling to break above the 225–226 zone. This weakness coincides with a Treasury General Account (TGA) refill. Last Friday, the TGA stood at roughly $500 billion. On Monday, it dropped by about $120 billion but has since been rebuilt. Thursday was a major Treasury bill settlement date, and today’s data should reflect another increase.
Next (LON:NXT) week will see three more settlement dates, likely pushing the TGA higher and reserve balances lower. The target is about $850 billion—February’s level—meaning roughly $400 billion still needs to be added. As the TGA rises, liquidity drains from the market, often reflected in rising overnight repo rates and the Secured Overnight Financing Rate (SOFR). This environment could continue to pressure smaller-cap and equal-weight names relative to the broader indices.
Internationally, an interesting development is the narrowing yield spread between German and Italian 10-year bonds, now at just 81 basis points. This may help explain why credit spreads remain tight. However, the narrowing could stem from Germany issuing more debt for infrastructure and defense, pushing its yields higher, while Italian yields remain stable or decline. This fundamental shift in Europe could be sending a misleading signal about U.S. risk appetite.
If this spread begins to widen again, it could pressure US corporate spreads as well. For now, it’s worth monitoring as part of the broader risk assessment toolkit.