The S&P 500 (SPY) finished the day lower by more than 1.7%, extending the decline from its late-January intraday highs to roughly 7.5%. That bear pennant mentioned yesterday broke cleanly to the downside — the index gapped below the lower trendline and never looked back.
If this is a true pennant — and the way it played out certainly suggests it is — then the decline is likely not over. There’s the infamous JPM collar options positioning level at 6,475, and it could act as a floor in the near term, but the broader question is whether it can actually hold in a market where dealer positioning is this negative. When dealers are in a selling posture, support levels that would normally matter can get steamrolled. We’ll just have to see how it plays out.
Rates had a big day. The 2-year yield surged to its highest level since June, and it’s now approaching a level where, if it clears the next area of resistance at 4.05%, there isn’t much standing in its way until the 4.30% and greater area. Sounds aggressive, but then again, so did the 2-year trading at 4% just a couple of weeks ago — and here we are.
The 10-year rate is approaching a critical juncture as well. If it pushes through its current resistance zone around 4.4%, the path opens up toward levels that would bring it back to its long-term downtrend. That would be a significant development for risk assets across the board.
It’s probably worth mentioning that the last time oil was above $90, the 10-year rate was trading at 5%. Draw your own conclusions.
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