[Chart courtesy of MarketWatch.com]

1. Moving the markets

Not only did last week’s debacle continue this morning, but markets also took a sudden dive during the last hour of trading, with the S&P 500 breaching its psychologically important 4k marker to the downside to close slightly below it and at its lowest in 13 months.

Again, this was a day with no place to hide, as even well-performing sector funds, like energy and commodities, were not immune from the onslaught of selling. Our energy sector position touched its trailing sell stop, which I took as an opportunity to get out of it and lock in some unrealized gains.

Interest rate fears had bonds swinging wildly with the 10-year slipping 9 basis points but maintaining its position above the 3% level. Rising interest rates have crushed the Nasdaq with the index caving another 4.3% today, and now down 27% from its record highs.

While bear market rallies can always develop suddenly, the major trend is to the downside, which had been confirmed by our Domestic TTI on 2/24/22.

As I pointed out, this is not the time to be in equities but to be in cash on the sidelines or in selected sector funds that are undergoing their own bullish trends. The Stagflation risk will be with us, which means that weakness in equities is bound to continue.

If this is not clear, ZH pointed to what happened to the Fang stocks so far:

FB -48%, AMZN -42%, NFLX -75%, GOOGL -25%

Crude oil plunged and gold tumbled, while the US Dollar went sideways and still hovers near its 20-year highs.

All this begs the question as to whether the Fed will fold to save the markets or be serious in its intentions to battle inflation.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Today’s bloodbath in equities makes yesterday’s “rebound of hope” look like a dead cat bounce, as dip buyers were not to be found anywhere. “Stunning” best describes this sudden reversal, which erased yesterday’s profits and then some.

With the Dow tumbling over 1,000 points, domestic equities notched their worst day of the year on top of the already stunning losses YTD. This chart, courtesy of FinViz.com, shows the wild ride we have seen in 2022:

With lower highs and lower lows dominating, and my Domestic TTI now hovering below its long-term trend line by -4.22%, we are clearly stuck in bear market territory and are watching endless rebound attempts.

While there was no place to hide, our selected sector ETFs, took only a small hit, with our latest addition, TBF, being the only one to score a solid gain of +2.81%.

As ZeroHedge noted:

• Remember yesterday was the best performance for a Fed rate-hike day since 1978!
• And today, the Nasdaq 100 Index fell 6% at its lows, the most since March 2020…
• …fully reversing yesterday’s post-FOMC gains

In the past week we have had:

• Friday: biggest drop since June 2020
• Wednesday: biggest surge since May 2020
• Thursday: biggest drop since June 2020

And, not helping matters today was the huge unwind of yesterday’s massive short-squeeze causing FANG stocks to chuck-up the hardest.  

Spiking bond yields were at the center of today’s debacle with the 10-year breaking through the 3% barrier and closing up 8.2 bps at 3.045%.

The US Dollar rebounded after yesterday’s losses, Gold jumped but could not hold on to early gains, but Crude Oil ended the day higher.

It was a wild and crazy session in the markets, and I believe this type of uncertainty is far from being over.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

While the headlines were screaming “Fed fires off biggest interest-rate hike since 2000,” the reality of it is that the increase in the Fed Funds rate from 0.5% t0 1% is hardly enough to fight inflation with a current CPI of 8.5%, which likely will explode higher next week with the latest data release.

For the moment, however, the big news was that the Fed hiked in line with market expectations, which catapulted the indexes sharply higher and wiped-out last Friday’s losses. It also shows that the Fed is beholden to the markets, which by many has been considered a policy error, as they hung on way too long to the “inflation is transitory” theme and ignored the magnitude of the growing inflationary forces.

Be that as it may, for today, a bear market relief rally finally gave the bulls some hope, as the opinion that the Fed can slow inflation without causing a recession prevailed. Just because Fed head Powell placated markets today does not mean he won’t turn more hawkish once the inflation numbers worsen.

For today, that thought was not on deck, as Powell explained:

“So a 75 basis point increase is not something that committee is actively considering, I think expectations are that we’ll start to see inflation, you know, flattening out.”

“I would say we have a good chance to have a soft, or soft-ish, landing.”

Really? I think the Fed chair will eat these words in the future but, at this moment in time, that was all it took to shift the computer algos into overdrive, and up went.

Since the bullish theme overrode all common sense, ZeroHedge tried to instill some reality with this tweet:

Bond yields jumped initially, with the 10-year touching its 3% level twice before backing off on Powell’s statements.

All sectors joined the rebound, but energy, VDE, took top billing with a gain of +4.13%, while commodities (DBC) performed very well by adding +3.12%. Gold lagged but managed to rally +0.98% but could not climb above its $1,900 level.

Of course, no rally can happen without a short squeeze, and today was no exception. Crude Oil soared, the dollar tumbled, while the Russian Ruble rallied to it strongest relative to the dollar since February 2020, as ZH pointed out.     

Then Powell ended with this:  

“Our tools don’t really work on supply shocks, our tools work on demand.”

Makes me go “hmm.”

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