Fallout From The Moody's U.S. Treasury Debt Downgrade

Good Monday Morning, MPTraders!  May 19, 2025-- Pre-Market Update:

-- Fallout from the Moody's U.S. Treasury Debt Downgrade? Will it change the behavior of Congress and/or the Markets?

MJP Response: Not initially, however, if the bond and equity markets react negatively, i.e., 10 and 30 year YIELDS back up aggressively, indicating that the investment "world" is demanding a larger risk premium to hold US paper assets (Treasuries, Dollars, and Stocks), THEN we will likely witness bouts of acute selling pressure in the stock indices that is analogous to the markets sending the following message to Congress and the Trump Administration: Either find more revenue, cut more spending, or else!

-- Chart Setups in the Macro Markets: 10-Year YIELD, the U.S. Dollar (DXY), and Gold (GLD)... 

With the foregoing response in mind, my attached Daily Chart of 10-year YIELD shows the huge up-gap open this AM from 4.44% on Friday (before the Moody's announcement) to 4.55% this AM, which we see is pushing up against critical resistance from 4.56% to 4.59% hit during the week after Tariff Liberation Day (4/02/25). From a technical perspective, a sustained climb above 4.60% will leave YIELD vulnerable and poised for upside continuation toward my next optimal target zone of 4.77%-4.80%. 

How will Treasury Secretary Bessent respond to such a situation as the Republican House and Senate attempt to pass President Trump's Big Beautiful Bill? (continued below the YIELD Chart)...

As for ES, so far, as fellow member FJB mentioned earlier this AM, the overnight weakness in reaction to Moody's has NOT "broken anything" technically. My attached 4-Hour Chart shows the 1% decline in ES from Friday's high at 5977.50-- 24% above the April low, to an overnight Monday AM low at 5892.75, or just 1.4%. 

The weakness found support at the April-May up trendline that cuts across the price axis in the vicinity of 5895. 

If ES does roll over, break, and sustain beneath the dominant up trendline, it will most likely coincide with 10-Year YIELD backing up to or above 4.60%, in which case, stock market investors will be telling us they are NOW concerned about rising interest rates if they we much more sanguine for the past several weeks. 

A sustained breach of nearest support at 5892/96 will point ES toward 5800-5820, and if violated, to 5650/70... 

At this moment, with ES trading at 5913/14-- above the April-May up trendline, the bulls remain in directional control...

Next up: VIX, DXY, and GLD...

-- Economic Data This Week (not much... See Calendar)... But many Fed Heads are making speeches that could impact Headline Risks...

-- Earnings This Week: