US Market Outlook: US 10Yr Yield: 6% ahead

The US 10Yr Treasury yield surged to a high of 5.23 per cent before closing the week at 5.17 per cent. That in turn took the dollar index to a high of 101.40. The index has closed the week at 101.05. The US equities have also ended in green in spite of a strong surge in the Treasury yields .

The Dow Jones Industrial Average managed to recover the intra-week loss and close marginally higher. The S&P 50 and the NASDAQ Composite Index on the other hand, after opening the week with a gap-up, sustained higher all through the week. The Dow Jones was up 0.28 per cent for the week. The S&P 500 and NASDAQ Composite index rose 1.21 per cent and 2.06 per cent, respectively for the week.

Will the surge in US Treasury yields continue? Can the equity markets also sustain higher amid higher yields? Here is an analysis.

The fall to 51,200-51,100 mentioned last week happened as expected. The Dow Jones touched a low of 51,129 and has bounced back from there. The outlook remains negative. Any rise above 52,000 if seen can be capped at 52,500 or 52,800.

We expect the index to fall back and break below 51,000 eventually. This break can happen either from here itself or after a corrective rise to 52,500-52,800. Such a break can drag the Dow Jones lower to 50,000-49,500 in the coming weeks.

After this fall, there are good chances for the Dow Jones to reverse higher and see a fresh rise.

The index has risen well above the expected level of 7,720. That keeps intact the broader bullish view. Support is in the 7,700-7,680 region. Intermediate resistance is around 7,780. We expect the S&P 500 Index to breach this hurdle and rise towards 7,850-7,870 in the coming weeks.

The price action thereafter will need a close watch. A downward reversal thereafter can take the index down to 7,800 and lower again. But a break above 7,870 will clear the way for an extended rise to 8,100.

The index has risen well breaking above the resistance at 26,700. The rise last week has increased the chances of breaking above 27,350, a crucial resistance. Such a break can take the NASDAQ Composite Index higher to 28,200 or 28,500.

This 28,200-28,500 is a strong resistance zone that can halt the upmove. A reversal from this resistance zone can take the NASDAQ Composite Index down to 27,000 initially. An eventual break below 27,000 can then drag it down to 25,000.

So, we reiterate that as the index moves up towards 28,000, the sentiment should turn more cautious rather than becoming overly bullish.

The rise to 101.30 in the dollar index (101.05) happened last week as expected. The index touched a high of 101.40 and has come down from there.

Resistance is around 101.50 which is holding well for now. Supports are at 100.90 and 100.65. If the index manages to sustain above these supports the chances of breaking above 101.50 will remain high. Such a break can take the dollar index higher to 102 and even 103 in the coming weeks.

In case the index breaks below 100.65, then fall to 100 and even lower levels can be seen.

Our bias is positive to see the dollar index break 101.50 and rise to 103.

The US 10Yr Treasury yield (5.17 per cent) rose well beyond our expected level of 5.15 per cent. The yield touched a high of 5.23 per cent and has come down from there.

Immediate support is at 5.15 per cent. Below that 5-4.9 per cent is the next strong support zone. So, if the yield breaks below 5.15 per cent, the downside can be limited to 5 per cent or 4.9 per cent maximum.

There is no major resistance available on the charts immediately. The price pattern on the chart indicates that as long as the yield sustains above 4.9 per cent, the upside is open to see 6.1-6.2 per cent in the coming months.