A Brief Taste of Reality

For a moment, at least, markets were treated to another taste of reality: rates at an acceptable level, the US dollar reacting accordingly, the USDJPY tumbling normally, VIX not being hammered into submission, and oil prices reflecting fundamentals.  Algos, which have grown accustomed to generous support from all the above, simply reacted as they should have.

SPX, ES and COMP all saw their sharply rising channels from Feb lows broken.  And, we were left with very few silver linings at the end of the day.  As “luck” would have it, DXY and USDJPY have bounced and durable goods beat estimates (thanks to increased military spending.) So, ES has bounced 34 points off its overnight lows and is showing an 8-pt gain at the moment.

FB, an important bell cow the past few days, reversed off its SMA200 but bounced yet again at the white channel line we discussed a few days ago [see: Facebook Flops.]

If you’re wondering whether this channel line is important, consider the chart below.  The only time in recent history that FB fell below its SMA200 and the channel line without precipitating a big drop in stocks was when FB announced a $6 billion stock buyback plan.  How’s that for an efficient market?

Unfortunately for bulls, currency and interest rate issues have not gone away.  In fact, a strong durable goods number merely exacerbates the problems faced by the Fed: how to maintain dollar purchasing power while keeping interest rates low enough to keep the country from going completely broke.

A reminder: our yield curve model is still flashing red.  Hence, our downside targets are still in effect.continued for members…


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