Fine Tuning

ES reached new highs yesterday, but SPX reversed at its .886 Fib retracement.  Which should we believe?  Since VIX is plunging in the minutes before the open, indications are that this morning’s selloff will be just enough for SPX to flesh out its latest rising channel — also on the way to new highs.

What could go wrong?  Plenty.  For one, 10Y yields are threatening to break out of a channel dating back to Jan 2000.  This seems to me to be a very dangerous game the Fed is playing.

The Fed clearly wants more headroom in rates on hand for the next economic disaster.  And, the 2Y continues pushing higher, perhaps to buoy the dollar and keep inflation from running away.

As the 2Y rises, the 10Y must at least keep pace in order to prevent a yield curve inversion.  But, yield breakouts have been unhealthy for stocks over since 2015.  With debt accumulating quickly, why would this one be any different?

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