Dangerous Game Of Chicken

Monday‘s higher stock prices don‘t mean that the sky is the limit now – there were quite a few signs of weakness in related markets as well. The put/call ratio moved lower against, and so did VIX. But it‘s the market internals that are the giveaway sign – technology has been the predictable upswing driver, reflecting my yesterday‘s thoughts on the rising yields pressure:

(…) One daily move doesn‘t make a trend change likely though, especially since the Mar pace of TLT decline is on par with Feb‘s and higher than in Jan. While Treasuries paused in early Mar, they‘re now once again as extended vs. their 50-day moving average as before.

And that poses a challenge for interest rate sensitive stocks and to some degree also for tech – while I expect the value to continue to lead to overgrowth, technology would recover some of the lost ground on rates stabilization. And it‘s true that the $UST10Y move has been a very sharp one, more than tripling from the Aug 2020 lows.

We got that reprieve yesterday, and tech jumped on board enthusiastically, while other usual beneficiaries didn‘t – utilities didn‘t move, but at least consumer staples swung higher. Coupled with the value stocks mostly treading water yesterday, it makes for weak daily market breadth.

The key events of today and tomorrow are the Congress testimonies – while Powell is set to downplay inflation, inflation expectations, and still overall elevated/rising long-dated Treasury yields, it‘s my view that the market is again squaring the bets, best seen in the commodities lately (think Thursday and today) – but I look for the Fed to project the same messaging it did on Wednesday, and perhaps double down on it.

I don‘t view the market as in danger of a deflationary collapse, not when the stimulus avalanche is hitting and the Fed is reluctant to change course. I am not looking for them to telegraphs such a turn today or in the weeks to come, and that would mean recovery in the commodity prices.

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Monica Kingsley 4 weeks ago Author's comment

Today dealt us a turn in gold, silver and miners, and it's not a bullish one. The only responsible course of action is to recognize that downswing as having put a stop to the Mar 08 bottom recovery. There is quite some room to go down on the weekly chart - see my status update in the feed, posted this moment.