[Chart courtesy of MarketWatch.com]

1. Moving the markets

There was no question that spiking bond yields were the destroyer of equity prices, with the major indexes tanking in unison right after the opening bell. A couple of rebound attempts were rebuffed, and the downward trend continued with the Nasdaq faring the worst with a loss of 2.83%.

Bond yields shot up with the 10-year touching 1.558%, its highest level since June, before retreating, while the 30-year catapulted above 2%. Amazingly, we saw the 10-year as low as 1.29% last week, and it had sunk as low as 1.13% in August. These are huge moves in that arena, which handed bond investors severe losses.

The reason for surging yields is increased conviction by traders that that the Fed will no longer talk but start tapering its $120 billion in monthly bond purchases “real soon.” What that means is that artificially suppressed rates due to tapering will now have to face the reality of a “true” market.

Added strategist Kathy Jones:

The market’s been steadily coming around to the reality that yields were awfully low relative to the fundamentals. Now the Fed is shifting, and everybody’s shifting their positions, all at once, as we tend to do.

Not helping matters was the ongoing budget showdown and the debt ceiling debacle, neither one of which exerted any positives towards the market. Uncertainty will keep a lid on any attempts to push equities higher.

Technical damage was done to the indexes, as Zero Hedge pointed out:

• S&P broke back below 50DMA, testing 100DMA
• Nasdaq broke back below 50DMA, testing 100DMA
• Dow broke back below 50DMA and 100DMA
• Russell 2000 broke back below 50DMA

When appropriate, I mention short squeezes and how they are supporting the bullish meme. However, none of that was present today, as “the most shorted stocks” did what they are supposed to, namely head south, and consequently wiped out yesterday’s squeeze gains in the process.

The US Dollar likes rising bond yields and continued its melt up and, during this course of action, slammed gold by over 1%. On the economic side, US Consumer Confidence plunged to 7-month lows, thus enhancing the sour mood on Wall Street.

You can see my latest blogging schedule here.

Read More

[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early bounce faded throughout the session with only the Dow maintaining bullish tendencies, while the S&P 500 and Nasdaq drifted aimlessly below their respective unchanged lines.

The final week of a volatile September caused this divergence in the major indexes with growth/tech stocks struggling as bond yields spiked, with the 10-year briefly breaking through the 1.5% marker and reaching its highest point since June.

The US Dollar rode the roller-coaster all day but stayed range bound and closed just about unchanged. Gold gave up its early gains and dipped back to the unchanged line, as surging bond yields took the starch out from any upward momentum.

The rise in yields benefited some sectors such as the financials (XLF) and the Commodity Index (CRB), each of which added +1.36% for the day. The value ETF RPV finally showed some signs of life by gaining an impressive +2.19%, but in that sector those kinds of advances can be wiped out in a hurry, as we have witnessed this year.

This week will not only mark the end of September, but on the menu are a host of items that can push markets around in a hurry. I am talking about the ongoing US Debt ceiling/government shutdown/infrastructure bill narrative, all of which might be coming to a head by the end of this week.

As ZeroHedge pointed out tongue-in-cheek, “maybe a 20% plus drop in stocks down to the level as shown in this chart may get the warring parties to agree on something.”   

We will find out.

Read More

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The continuing crisis in China with their worsening Evergrande developer spectacle and potential default in the hundreds of billions of dollars, was simply moved to back burner, at least for this session.

However, this fact remains:

But the elephant in the room is not the write down of a modest $18 billion in foreign bonds to the likes of Blackrock, for whom this is peanuts. The real question is how an Evergrande failure would impact confidence in China’s property sector and whether it will lead to a sharp drop in what has traditionally been the world’s most valuable asset, one which represents some 70% of China’s urban household net worth.

For sure, we have not heard the last of this predicament…

Dominating the markets was the Fed and its indication that current monetary stimulus would continue just a while longer, with the powers to be not yet having announced a formal starting date.

The central bank issued a statement following the meeting that said if progress continues “as expected,” then a “moderation in the pace of asset purchases may soon be warranted.”

That was sufficient encouragement, and equities shifted into overdrive with the three major indexes adding over 1% each. To no surprise, this ramp-a-thon was enough to wipe out the losses sustained on Monday and Tuesday and push the indexes back into the green for the week.

I took the opportunity to replace our recently sold value ETF with a more appropriate holding for the current environment.

It was a tale two markets with stocks up and everything else down. Another big assist came from a short squeeze, which helped to pull the indexes out of their doldrums. The US Dollar gagged and surrendered yesterday’s gains.  

Bond yields surged and gold got purged, as even a diving dollar could not prevent the precious metal price from being shaken up.

As a reminder, I will be out again tomorrow, so there will be no market commentary, but I will post the weekly StatSheet by 6:30 pm PST tonight.

Read More

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Despite the Fed’s (FOMC) most hawkish statement in 3 years, the markets took it as a positive and propelled the major indexes out of their recent doldrums, with all 3 of them advancing around 1% for the session.

Support for stocks came from the fact that the Fed will not initiate an immediate rollback of monetary stimulus, which has been a supporting actor to keep the markets elevated over the recent years.

The FOMC signaled a rate hike in 2022, with Fed head Powell noting that “tapering ending around mid-2022 may be appropriate.” That matched expectations that the start of taper might begin in December at a reduction of $15 billion per month, which means the actual announcement will be still forthcoming.

Added analyst Graham Summers:

By way of comparison, during the Fed’s last QE taper (that pertaining to QE 3 in 2017), the Fed reduced the pace of its then-QE program by $10 billion every THREE months, with the pace stopping at $30 billion per month.

Again, the current proposed tightening is much faster and aggressive than the last.

The big question is how the markets digest this. The last time the Fed attempted to taper a major QE program, it ultimately blew up the corporate debt markets resulting in stocks collapsing 20% in a matter of weeks.

The market’s rise was interrupted by reversals, with equities coming off their highs, the US Dollar crawling out of an early hole and ramping higher, while gold lost its early shine and was dumped into the close.

10-year bond yields bounced around aimlessly and remained stuck in their 3-day trading range.

It was an interesting ride, but in the end reality comes down to the direction of the Fed’s balance sheet, no matter what the underlying economic conditions indicate, as Bloomberg demonstrates in this chart.

Read More

[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early bounce, indicating dip buyers stepping in to take advantage of lower prices because of yesterday’s slam, ran out of steam with the major indexes lacking bullish conviction to turn this session into a turnaround Tuesday.

Despite valiant efforts, the Dow and the S&P 500 gave up all early gains and slipped slightly into the red, but the Nasdaq managed to buck the trend by closing marginally in the green.

In my advisor practice, we finally pulled the trigger and sold the value ETF RPV, which had been dancing around its trailing sell stop for quite some time and did not show any signs of life during the early rebound.

This ETF performed well early in the year but has lately been a disappointment. This move reduces some our equity exposure which, given current uncertainties, appears to be a wise choice. Once volatility dies down again, and we are moving into the seasonally strong part of the year, we will replace this empty spot with a more appropriate ETF.

All eyes were on the current Fed meeting with the results due out tomorrow. Traders are looking for Fed head Powell to reveal some of the Central Bank’s plans to taper its bond buying agenda, especially the timing of such. Also eagerly awaited are the quarterly economic forecasts along with a statement on interest rates.

ZeroHege posted an interesting take about tomorrow’s September 22^nd:

As infamous market-seer, W.D. Gann once noted, September 22nd (the Autumnal Equinox) is the most important date in markets – when markets are more likely to reverse than any other day of the year. For some reason, stocks, commodities, and currencies have a curious tendency to make major tops or bottoms on this day.

Today’s rebound was lacking breadth, which compares the number of stocks below their respective 200-day Moving Averages to the index, a picture that is worth a thousand words. This another reason why reduced equity exposure in these uncertain times is a good idea.

The US Dollar rode the roller coaster and ended just about unchanged, while bond yields edged higher with the 10-year now back over 1.32%. Gold rose +0.64% and managed to be a haven of safety, at least for this day.    

Read More