WILL THE 50 DAY MOVING AVERAGE BE VIOLATED?

The indices are on the verge of rolling over.  Bloomberg writes for the fifth time this year the S & P 500 has traded to this pivotal support line and in every instance rebounded.  Will today be different?

As noted last week, the “typical” stock rolled over about 45 days ago with the mega sized capitalized issues supporting the indices.

Yesterday Treasuries continued their relentless advance yet the equity markets stumbled, an inverse of the last two months.  Is this significant?

It appears every iconic money manager and economist is openly questioning the insatiable demand for Treasuries in the face of generational high inflation and record demand for monies by the government.  The oxymoronic move is one of historical proportions and could perhaps be studied in business classes for many years.

JP Morgan commented yesterday the markets are behaving irrational, the reflationary trade will return with the same vengeance as the “risk off trade” remerged.  The Bank further commented there are “influences” not yet fully known or understandable with such explanations only offered in months to come.

Goldman commented yesterday that last week the month to date average daily notional amount in options traded rose to a record, rising about 45% above previous records.  Approximately half of the volume was in out of the money call contract in amounts less than 10 for the mega sized tech issues.  This is inherently short term bullish, thus begets the question why is the S & P 500 about to roll over?

Goldman opines today’s environment is similar to the massive transition that occurred at year end and beginning of 2021, validating JP Morgan’s view the reflation trade may return at the same velocity as the “risk off trade” remerged.

Will these views come to fruition?  Unfortunately, only history can answer this question.

The accepted catalyst for yesterday’s market action was the Delta COVID variant, geopolitical jitters after the US and the UK accused the Chinese government has been behind a series of ransomware attacks and data theft as well as rising inflationary pressures that will impact margins.

What will happen today?

Last night the foreign markets were mixed.  London was up 0.36%, Paris up 0.49% and Frankfurt up 0.11%.  China was down 0.07%, Japan down 0.96% and Hang Seng down 0.84%.

The Dow should open nominally higher. The 10-year is up 7/32 to yield 1.17%. Bloomberg writes this morning there is near unanimity that the relentless Treasury rally is “confusing and confounding” with the Newswire equating prices greater than the NASDAQ bubble of 2000.

 

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