Great ADP Figures But Things Can Still Turn Nasty

Powell gave a wait-and-see answer to my yesterday‘s rhetorical question about the bears just starting out, indeed. The S&P 500 plunged, breaking far outside the Bollinger Bands confines, illustrating the extraordinary nature of the move. A rebound would be perfectly natural here (and we‘re getting one as we speak) – but will it be more than a dead cat bounce?

Stocks partially recovered from last Friday‘s intraday plunge, and good news about the stimulus clearing House followed after the market close – stock bulls took the opportunity, and Monday‘s session gave signs that the worst is over. Tuesday‘s move partially negated that, but even after Wednesday, the short-term case was undecided (even as tech kept acting relatively weak).

Yesterday‘s session though gives the short-term advantage to the bears, and that‘s because of the weak performance I see in other stock market indices and bonds. The Russell 2000 got under pressure, negating what by yesterday still looked like a shallow correction there. So did the emerging markets and their bonds. More downside can materialize either suddenly or slowly over the coming say 1-2 weeks. It depends on the tech and its heavyweight names, where these find support.

Corporate credit markets aren‘t weakening as dramatically though – as you‘ll see illustrated later on, both high yield corporate bonds and the HYG:SHY ratio are holding up much better than stocks. While that‘s bullish, the S&P 500 apparently hasn‘t yet learned to live with higher rates – let alone considerably higher ones.

The key element playing the markets now, is the Fed‘s approach to inflation, rising long-term Treasuries in the face of central bank inaction, and inflation denialism, which translates into the dollar taking the turn higher courtesy of the stresses induced across many asset classes.

I asked yesterday:

(…) How far is the Fed announcing yield curve control, or at least a twist program? Markets crave more intervention, and those calling for rate hikes to materialize soon, are landing with egg on their faces – mark my words, the Fed is going to stay accommodative longer than generally anticipated – have we learned nothing from the Yellen Fed?

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Monica Kingsley 1 month ago Author's comment

30min before the closing bell: XLK is looking really optimistic - have we found the bottom, and can the grind higher in tech slowly but surely continue again, even with lower volume than was the case yesterday? Optimistic finish to the week indeed.

Monica Kingsley 1 month ago Author's comment

As regards S&P 500 and Nasdaq, we might be looking at tweezers bottom here actually (QQQ). And that's far from the only markets that gives some credibility to today's unfolding reversal – too early yet to call whether it would stick or not. I can find good arguments for both sides, and remain rather cautious(ly bullish, whispering) still. While 200-d MA acts as a magnet surely for the correction to attempt to reach, it's far from the only ones at play. So far so good (2hrs 20min to go still).

Monica Kingsley 1 month ago Author's comment

Let's save here (just in case) the gist of my gold market comment - the metal is working hard to reclaim the $1,700 mark, and could very well strengthen from here indeed - but it must clear the volume profile zone it narrowly left, and fast. Otherwise the next support lower can come into play. I've been calling gold upside and warning against downside this year and prior, looking at TLT and USDX - and the latter is going to turn into a supportive factor, for it's the greenback that would be the key asset on the defensive this year, in a bear market still. I think the new gold upleg is closer than those renowned for overly bearish views think.