STOCKS SHOW MODEST WEEKLY GAINS -- BUT DOWNTREND STILL IN EFFECT -- PULLBACK IN BOND YIELDS MAY BE HELPING STOCKS

MODEST WEEKLY GAINS... Stock indexes gained some ground this week, but not enough to reverse major downtrends.    And they remain below overhead resistance levels.   The daily bars in Chart 1 show the Dow Industrials rising to the highest level in six weeks and clearing their 50-day moving average.  While that was encouraging action, the two upper lines show overhead resistance drawn over the June high and below the March low.   Friday's selloff also suggests that the weekly rebound is still on shaky ground.   Chart 2 shows the overhead resistance line for the S&P 500 drawn over its March high and June low.  The SPX would have to clear that line to signal a stronger rebound.   Chart 3 shows a similar chart picture for the Invesco QQQ Trust.  All three stock indexes ended the week above their 50-day averages.

WEEKLY SPX CHART...The weekly bars in Chart 3 put the SPX downtrend in better perspective.   They show the SPX ending the week above its 1o-week (50-day) moving average for the first time in thirteen weeks which is mildly encouraging.  In addition, its 14-week RSI line in the top box is bouncing from oversold territory near 30.  That line needs to clear its midline at 50 to signal more upside momentum.  The weekly MACD lines in the middle box remain negative but have been converging over the last six weeks.  That shows some improvement as well.  The two MACD lines, however, need to turn positive to signal the likelihood of stronger price action.  All of which suggests that the S&P 500 may be probing for a short-term bottom within the context of a major downtrend.  A drop in bond yields may be helping stocks.

DROP IN BOND YIELD HELPS STOCKS... One of the factors that may be helping to boost stocks to a six week high has been a drop in bond yields.   Chart 5 compares the 10-Year Treasury yield (green bars) to the S&P 500 (black bars) over the past six months; and shows the two trending in opposite directions.  Rising bond yields between March and June coincided with falling stock prices.  Over the past five weeks, however, a drop in bond yields has coincided with a rebound in stock prices (see arrows).  The green bars show the TNX having fallen to potential chart support along its May low (green line).  What it does from there may help determine the short-term direction of stocks.