Interest Rate Whack

The yield on the U.S.10-Year Treasury Note held steady through Wednesday of last week and then like a bolt out of the blue it opened 10 basis points (bps) higher on Thursday closing at 1.71% and then added more, 3 bps on Friday according to the U.S. Treasury Resource Center website. While increasing interest rates are now expected, large one-day increases shock the markets. The Market Review includes details along with comments on three booked ETF positions from recent issues.

S&P 500 Index (SPX) 3913.10 declined 30.24 points or -.77% last week after making a new closing and intraday high at 3,983.87 on Wednesday. It remains above the 50-day Moving Average at 3862.11 that it will test on any further decline this week. Should that support fail the next test will come at the operative upward sloping trendline, USTL that now crosses at about 3800.

Last week was the second when the 10-Year Treasury Note yield suddenly jumped up 10 basis points (bps) in one day. After Federal Reserve Chairman Powell's comments on Wednesday 10-Year Treasury Note yield increased just one bps to end at 1.63% as the SPX made new highs. It's not clear what caused a reassessment before the markets opened on Thursday, but it's clear the markets have trouble digesting large one-day increases in interest rates.

Invesco QQQ Trust (QQQ313.14 slipped 2.32 points or -.74% almost equal to SPX but it remains below the almost flat 50-day Moving Average at 321.04 that contained Tuesday's and Wednesday's bounce for the second week. With many richly valued high-growth stocks some without earnings, greater interest rate sensitivity creates extra drag as rates increase.

CBOE Volatility Index® (VIX) 20.95 inched up .26 points or +1.26% last week. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, added .17 points or +1.07% ending the week still bullish at 15.99% – slightly higher than the week before.

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Disclaimer: IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter ...

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