15 Apr A MODEST NASDAQ REVERSAL
A midafternoon sell program perhaps tied to the Beige Book which indicated potential margin compression sent the NASDAQ down about 1.0%. Oil advanced about 5% on diminishing inventories. Treasuries sold off nominally.
Perhaps the five most operative words in the above paragraph is “sell programs” and “potential margin compression.”
The Beige Book, or the statistical compilation utilized at the upcoming FOMC meeting, characterized the economic expansion as “moderate” which is causing supply chain disruptions, rising wages partially the result of the inability to attract and retain qualified applicants, and input inflation is outstripping selling pricing are “all of which of the above suggests margin contraction.”
Valuations are near or at record levels and margin compression has the potential to greatly increase volatility.
As noted many times, according to the SEC 90% of volume is the result of algorithmic trading. Goldman has consistently stated liquidity is “anemic.” Bloomberg states the selloff commenced around the same time of a modest sale 18,000 E mini S & P that sent the shares sharply lower which incidentally occurred around the same time the Beige Book was released.
For many reasons, many bulge bracket firms are suggesting the markets can decline 5% to 20%. If the reasons for yesterday’s modest reversal in the NASDAQ are indeed accurate, perhaps this selloff will occur quickly for reasons not experienced in a generation.
What will happen today?
Last night the foreign markets were mixed. London was up 0.33%, Paris up 0.27% and Frankfurt up 0.27%. China was down 0.52%, Japan up 0.07% and Hang Seng down 0.37%.
The Dow should open nominally higher on solid mega sized financial firms’ earnings and nominal decline in Treasury yields. Retail sales and jobless claims are released at 8:30. Later in the morning several manufacturing statistics are released as is a housing survey. The 10-year is up 6/32 to yield 1.62%.