pebblewriter

Tag: SPX

  • Charts I’m Watching: Aug 20, 2018

    Futures are hanging on to a 4-pt gain, primarily on a continuing decline in VIX.  With Jackson Hole coming up, we could see more volatility — particularly if Fed speakers back off their hiking schedule.

    Speaking of backing off…TSLA is back down to its horizontal and trend line support.  As readers will recall, this is a critical line in the sand.As we concluded last May [see: Can TSLA Avoid a Crash?] a drop through this key level could easily land the stock below 200.  Our chart from back then, before the craziness really got going…

    Apparently JPM has also adopted this view.  And, an increasing number of observers are coming to the same conclusion we did a couple of weeks ago regarding Musk’s emotional state [see: Is the Pressure Getting to Elon Musk?]

    continued for members… (more…)

  • JGBs Gone Wild

    Lots of excitement in the currency markets this morning — particularly the yen.  The USDJPY plunged rather decisively to our nearest downside target… …after stories appeared in the financial press that the BoJ was embarking on a buying spree, offering to buy “an unlimited amount of bonds.”  Why would they do such a thing?  Yields on the 10-year had soared to as high as – gulp – 0.09%.

    So far, futures have remained mostly flat — thanks to VIX’s continuing slump and oil and gas’ ramp.  But, can it last?

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  • The Art of Hat Holding

    One nice thing about patterns is that they give you something to hang your hat on.  When we drew the Inverted Head & Shoulders Pattern on Jul 3 [see: Holiday Headfake] there was nothing in the news to suggest a 100-pt rally in the ensuing week.

    Yet, SPX and ES landed within a point or two or their IH&S targets yesterday all the same.  Likewise, all the news was rosy yesterday — incessant talk of renewed buyout fever and imminent, glowing earnings reports.Yet, completion of the pattern, combined with a channel midline, put a pause on the rally right where expected.  With its SMA200 now a mere 30 points below its 2.24 extension, SPX can backtest any time it likes with plenty of support around 2700.

    In fact, if ES is able to hold the (formerly broken) channel into which it reinserted itself, the damage would be limited to 20-30 points.

    One key: VIX.  So far, it has put the brakes on at a backtest of the recently broken straw-man trend line.  If it can remain below the red TL and the SMA200, and USDJPY keeps ramping, stocks will suffer a mild pullback.  If the coming drops in oil and gas get going, then SPX will do well to hold 2750 and, depending on the PPI/CPI numbers due out today and tomorrow, could test 2700 again.

    If we should dip below the SMA200 and 2.24 extension again, then it’s time to hold on to your hat.

    continued for members… (more…)

  • Is Market Integrity Even a Thing Anymore?

    Want to know where markets are going?  Just check Facebook.  The stock, that is.

    As I pointed out in March [see: Facebook Flops] the stock is a very reliable indicator of overall market direction.  And, right now, it’s threatening new all-time highs.

    But, its accomplishment raises an important question: does it matter how the stock got to where it is?  What about market integrity and price discovery?  Do they matter?

    As we’ve discussed, each time FB tagged or dropped through its 200-DMA (the red line below,) the S&P 500 swooned — or even underwent a full-fledged correction.  The 2015-2016 correction is the most obvious.But, FB’s November 2016 dip was potentially more serious.  Not only did the stock drop through its 200-DMA, but it remained there long enough to produce a bearish death cross, where the 50-DMA crosses below the 200-DMA.

    The impending death cross could be seen a mile away.  So, after a week of the stock lingering below its 200-DMA, the FB board announced a $6 billion stock buyback plan.  The stock bounced a few times, finally clearing the 200-DMA on the very same day that the death cross occurred.  What better way to convince investors that the death cross wasn’t anything to be concerned about?

    Facebook doesn’t publish detailed transaction reports for stock buybacks; but, it seems likely that the shares purchased under the plan were timed to help the stock clear its 200-DMA.FB ran up to new highs, ignoring the 4.23 Fib extension as it had all the others.  A year later, however, it managed to drop back below its 200 DMA.   In the process, it completed a bearish Head & Shoulders pattern that targeted 133-140 — another 17-20% drop on top of the 13% it had already shed.

    After dropping through the neckline of the H&S Pattern, the stock couldn’t even manage a full backtest before plunging anew. The dreaded death cross occurred on April 13.  On the 25th, the company announced a $9 billion expansion of the stock repurchase plan.  This was particularly significant, as there was still $4 billion left over from the original $6 billion plan.

    The very next day, FB spiked up through its neckline and 200-DMA. Since then, it’s tacked on 25%.  Are any shareholders complaining?  Of course not.  Ditto for the many employees who own shares.  So, what’s the problem?  All’s well that ends well, right?

    I suspect most investors would agree with that sentiment.  There has been little outcry, even though 54% of corporate profits — over $5.1 trillion — has been dedicated to buybacks over the past 10 years.

    Prior to 1982, buybacks were prohibited.  They were considered a form of market manipulation. After passage of Rule 10b-18, however, corporations were offered a safe harbor as long as they met certain conditions.

    Supporters of buybacks say they are beneficial.  Over half of all Americans own stocks, even if indirectly through a 401(k.)

    Critics maintain that they are a financial engineering trick, inflating EPS even if profits aren’t actually growing.  Chrisopher Cole of Artemis Capital figures that 40% of EPS growth since 2009 is from share repurchases.

    NYU professor Edward Wolff says they benefit the rich more than anyone else, as the top 10% of households own 84% of all stocks.  Yale professor Robert Shiller calls buybacks “smoke and mirrors.”

    It’s safe to say that as long as corporate management can borrow money at historically low rates in order to drive their stock higher, the practice will continue.  But, it’s hard to look at a stock like FB without wondering whether market integrity is still a thing.

     

     

     

     

     

  • The Yield Curve: An Update

    Short and sweet this time…  Previous bounces off the 10s2s yield curve lows haven’t turned out that well for equities.

    related posts:

    Oil & Gas, Inflation and Interest Rates: Delicate Balance or Goal Seeking?
    Update on Bonds: Apr 27, 2018
    Does the Yield Curve Matter? A Closer Look

  • The Market’s Latest “Lucky” Bounce

    That’s a relief!  For months, pundits have been arguing whether the Fed needed to hike interest rates three times or four times this year — you know, because of all the growth coming down the pike.

    Fed Über-Dove and “Man Who Thinks Market Integrity is Overrated” Jim Bullard just announced that the correct number is zero.  That’s right.  Everything is perfect just like it is.

    Amazingly, and quite by coincidence, this pronouncement occurred on the exact same day that several stock market indices were in danger of falling below a very important technical level of support: their 200-day moving averages.  As we discussed on Monday, falling below the SMA200 isn’t usually very healthy for markets.

    For visitors and new members, this seems like a good time to take a walk down memory lane.  This isn’t Mr Bullard’s first rodeo.  Nor is it the first time “someone” did something clever to ensure the market’s continued ascent.

    The S&P 500 illustrates the phenomenon quite well, having experienced a number of such fortunate events at crucial times. October 2014 – Bullard!

    Bullard appeared on Bloomberg to explain that another round of QE might be in order. As “luck” would have it, this enabled SPX to reverse right as it reached important Fibonacci support, ending a 9.9% tumble and narrowly averting an official correction.

    Big assist from USDJPY, which soared 16% over the next 7 weeks in spite of the fact that more QE should have weakened the US dollar.  The Yen Carry Trade in all its glory.

    August 2015 – USDJPY!

    This 12.5% correction was set up by USDJPY falling back below a critical Fibonacci level (the .618 at 120.11) in the wake of SPX reaching a key Fibonacci extension (the 1.618 at 2138.)

    We had correctly forecast the top [see: The Last Big Butterfly] but it was unclear whether or not USDJPY could remain above 120.  SPX plummeted when 120 finally fell but, as “luck” would have it, was (temporarily) rescued by USDJPY’s bounce back above it.

    February 2016 – Oil!

    The price of West Texas Intermediate Oil (CL) had fallen 77% between Aug 2013 and Feb 2016.  While this crushed inflation to a manageable level, it made investors in and lenders to energy-related companies pretty nervous.

    As “luck” would have it, CL bottomed out on Feb 11, 2016 — the exact same day that SPX reached that critical Fibonacci support level of 1823.  CL doubled over the next four months, and SPX rebounded sharply.  By accurately forecast the bottom in oil, we could confidently call a bottom for SPX [see: USDJPY Finally Relents.]June 2016 – USDJPY!

    Stocks plunged in the wake of the Brexit vote.  As “luck” would have it, USDJPY — which had used CL’s rally as an opportunity to reset — picked this particular day to bottom out and spiked 8% higher over the following month.

    Futures had sold off by 6.5%, but by the time SPX opened the next morning the recovery was well underway.  It was soon back above its recent highs and the critical 1.618 extension at 1.618.  In other words: new all-time highs.

    November 2016 – Trump*!  Unfortunately for stocks, the US election results weren’t conducive to a rally.  Once Trump’s election became apparent, futures plummeted over 5% in a matter of hours.  SPX had bounced off its SMA200 a few days earlier.  Unless something was done quickly, it would drop through this key support the following morning.As “luck” would have it, USDJPY picked this particular day to bottom out.  It spiked 5% over the next few hours and 18% over the next few weeks — a supersized version of the exercise which had saved stocks post-Brexit.

    And, if that weren’t enough, VIX — the widely accepted indicator of fear and volatility — plummeted even as futures were plunging.  It’s the equivalent of calling your insurance broker to cancel your homeowner’s policy as a hurricane bears down on your beach house.  How very, very “lucky” indeed.Futures recovered almost all of their losses by the time the cash market opened the following morning. VIX went on to shed over 50% of its value and broke down through trend line support (above, the white arrow.)

    Stocks were soon registered new all-time highs. The talking heads called it the “Trump Rally” and attributed the gains to the incoming president’s pro-business orientation and deal-making acumen. But, I think it deserves an asterisk…on account of the incredible “luck” involved [see: Why the Trump Rally is a Fraud.]

    The SPX chart isn’t labeled as such, but the rise from 2138 to 2703 (the next major Fib level) wouldn’t have been possible without continued support from oil and VIX.  After doubling in value, CL proceeded to construct a well-formed rising channel (below, in purple) that was very supportive of stocks.  It oscillated between the channel’s top and bottom like clockwork — until December 2017.  We’ll come back to that.Also during that time, VIX was trying something new.  After years of occasionally bouncing off the bottom of a long-term channel (below, the yellow arrows) it decided to plunge below that channel bottom and spend 80% of its subsequent days in the cellar — reaching new all-time lows in the process.This sent a strong all-clear signal to stocks (or, at least the algos that trigger stock purchases) that the coast was clear. It was completely safe to buy stocks, which they did — producing a rally that accelerated all the way up to the 2.24 extension at 2703.

    December 2017 – Oil!

    At that point, oil’s breakout (remember the purple channel above?) and the onslaught of new, daily lows in VIX combined to give SPX the boost it needed to climb above that resistance.  I mean, how “lucky” can you get?  It popped above 2703 and tacked on another 6.3% for good measure.

    Unfortunately for stocks, though, there was a practical limit to how high CL could go without creating problems.  Someone had forgotten that higher oil prices mean higher inflation.  And, higher inflation means higher interest rates.  And, when you’re $21 trillion in debt and pass a tax bill and budget that greatly widen the deficit considerably…higher interest rates are not exactly lucky [see: Why Higher Interest Rates Are a Problem This Time.]

    Between that realization and a growing disconnect between price and supply & demand, CL had to drop.  When it did, and the (dashed, red) trend line from August 2017 finally broke down, stocks didn’t take it well.SPX plunged almost 12% over the next two weeks, one of the sharpest corrections ever.  Luckily, the SMA200 was there to catch it.  A few days later, CL popped back above its channel top and SPX recovered to back above 2703.

    As the bounce began to fade, we had a surprise message from Bullard that “too many rate hikes could slow the economy.”  It was enough to extend SPX’s bounce for another few weeks.  But, ultimately it slipped back down below 2703 to tag its SMA200 again.  And, again.  And, again.  And, again.

    By then, DJIA and RUT had finally risen to the point where they could tag their SMA200s as well.  SPX bounced at our 2561 target.  Investors were in luck!  Until this morning.

    April 2018 – Bullard!

    Apparently, someone forgot to explain to the Chinese that we were supposed to win the trade war (winning them is easy!)  This morning, we found out that China had the gall to fight back.  When I was woken by an price alert at 3:15 this morning, the futures were off 55 points.  SPX would open back below its SMA200.

    But, the futures didn’t know what they were up against!

    Then came Larry Kudlow, the guy who in May 2008 called the impending Great Financial Crisis a “non-recession recession.”  Some people might have misunderstood; but, obviously he meant it would be much worse than a recession.  (I can’t wait to find the pot of gold!)

    As “luck” would have it, the market was quite pleased with all this positive scuttlebutt.   ES, once down 55 points, closed up 34 points.  SPX and the Dow rose about 1%.  RUT added 1.30%.  And, COMP — which never did tag its SMA200 — popped 1.45%.  Take that, 200-day moving average!

    Bounces are nice, whether driven by oil, the USDJPY or Fed cheerleaders.  This one got SPX back above its SMA200, which is a good start.  Next comes the 2.24 Fib, which SPX has crossed some twenty times in the past two months.  Can it rise back above and stay there this time?

    Oil’s limitations haven’t disappeared.  Managing inflation and interest rate expectations will continue to dominate its price action.  Lately, the market has a very narrow range within which it feels comfortable.

    USJDPY is threatening to break out from a falling flag pattern, but one has to wonder why it hasn’t done so already.  Japan got no love from Trump in the trade war chatter to date.  It’s quite possible they’re done cooperating with currency intervention. VIX, after popping back above the yellow channel bottom in dramatic fashion in February, has fallen back to a trend line (red, dashed) from its January lows.  Every time it pops above the trend line, SPX stumbles.  Every time it drops below it, SPX rips.  Today, it tagged it and reversed lower – hence the day’s gains.  It has plenty of additional downside potential, with the potential to drive stocks back above 2700.  But, again, it hasn’t done so yet.

    It makes one wonder whether SPX will be allowed to put in a lower low in order to make the corrective wave look a little more conventional and give COMP a shot at its SMA200.  We have oodles and oodles of downside targets if SPX’s SMA200 should fail.  That white dot at 2138 in the chart above is there for a reason [see: More Where That Came From.]

    There are countless other factors I haven’t even mentioned: our yield curve model (which tentatively turned bullish today), 10yr note rates, the US dollar’s buoyancy, various momentum indicators, and the continuing sagas of FB, TSLA, AMZN and DB — all of which have played a role in the market’s gyrations (mostly of the bad luck variety.)

    Whatever happens, it’s hard to imagine we could reach new highs without plenty more luck.  Trade safe, and stay tuned.

     

     

     

     

     

  • Update on COMP: Mar 20, 2018

    Facebook is only 5.5% of the Nasdaq Composite (COMP), but yesterday’s plunge [see: Facebook Flops] was a good reminder to update our outlook.

    In our last update [see: Nov 6, 2017 Update] we identified 7619.37 as our next upside target.

    At this point, it’s pushing into the top quadrant of the rising white channel where it will soon reach the top of the rising purple channel — currently at 7260.

    It probably won’t stop there, though, as the 1.618 and the rising white channel intersect at 7619.37 at the end of the year. It’s too convenient a target to ignore. And, I fully expect it to reach it unless we get a nasty surprise on the geopolitical front.

    As it happened, COMP’s tag of 7619 was delayed by the February correction. It topped out last week and has since retreated 352 points — about 4.5%.  Since COMP reached its important 1.618 Fibonacci extension and the top of a well-formed channel, it’s fair to ask whether there’s more downside ahead.

    continued for members… (more…)

  • Does the Yield Curve Matter? A Closer Look

    I called a top in SPX on May 20, 2015 [see: The Last Big Butterfly] because it was about to reach the 1.618 Fib extension at 2138 — our upside target from way back in 2012.  SPX peaked the following day and fell over 300 points before it was all over.

    What I didn’t notice at the time was the bond market. We’ve focused on this from time to time, most recently on Dec 29 [see: Should You Fear the Yield Curve?]  We noted at the time that while the spread between 10Y and 2Y was dropping rapidly, it only represented a warning unless it bottomed out and rose rapidly.  From that post:

    …the above shows that while the potential is there for a recession, this is just an early warning at this time. If the yield curve bottoms out here and rapidly steepens, we’ll have a lot more to worry about.

    Two sessions later, the spread did bottom out, and has been on a tear ever since.  What does this mean?  Let’s look at how things unfolded in the past.

    The spread had been tightening since Dec 31, 2013.  It bottomed in Feb 2015 and began rising again.  In early May, it broke above a trend line (red, dashed) connecting its highs.

    About the same time that SPX was peaking, it backtested that TL and continued higher.  It broke trend (purple, dashed) around Jul 31, a few days before SPX fell off a cliff.  It broke down to new lows (the red, dotted line) in Jan 2016, about the same time that SPX bottomed out.What the yield curve said, then, in simple terms:

    – a breakout from the downtrend marked an equity top (bearish)
    – a breakdown of the subsequent uptrend was really bearish
    – a break to new lows represented a potential bottom (bullish)

    Before I go any further, I want to point out that there were four significant bottoms in 2015-2016.  The first two came close to backtesting the 1.272 Fib at 1823, but didn’t quite make it.  The second two did.Now, let’s look at the same period, but comparing the 10Y (TNX) itself to SPX.  Note that SPX peaked shortly after TNX reached the falling red TL, and began having trouble once TNX broke out.

    SPX fell off its cliff when TNX fell back through the rising purple TL, making bottoms each time TNX did. On Jan 20, 2016, TNX tested its Aug and Sep lows, at which point SPX bottomed at 1812.  A week later, TNX plunged below the previous bottoms and didn’t bounce until it reached the Jan 2015 lows (dashed, purple line.)

    The message delivered by TNX was slightly different from the 10Y2Y:

    – rising up to tag the falling trend line represents a bearish turning point
    – breaking out above it is okay, as long as the uptrend continues
    – a breakdown of the subsequent rebound is really bearish
    – stocks won’t bottom until TNX does

    If we look at the chart below, we can see that the 10Y tracked the 10Y2Y quite closely until it diverged in late 2015 in a failed effort to support stock prices.  It didn’t provide decisive support until it bottomed in Feb 2016 at its Feb 2015 lows.  For a few brief days, the divergence disappeared.Why is this even remotely interesting, you might ask?

    As in 2015, we have also experienced a huge divergence between the 10Y2Y and the 10Y itself.  This is noteworthy in and of itself.But, the comparison gets even more interesting.   As in 2015, we have had an extended slump (14 months vs 17 in 2015), a breakout above the falling red trend line, and a backtest of the trend line.The big differences, so far, are that the spread hasn’t gone on to new highs and that the (presumed) low came as spreads were peaking and only two weeks (versus 8 months) following the peak.

    But, so far, the lessons from 2015 are holding.  The breakout above the falling red TL definitely produced a drop in stocks.  The backtest of the red TL has occurred, but it hasn’t quite reached the purple TL.  As long as it continues bouncing and doesn’t drop back through that TL, stocks should be able to continue rising.  The day it drops back through it, things could get nasty.

    Next, let’s look at the current TNX chart.  We could look at the drop since the Mar 2017 highs, but it was rather short-lived and the subsequent rebound has resembled a moon shot.  Instead, let’s look at the big picture.

    A trend line from the 2008 highs connected with the 2010, 2011 and 2017 highs.  After reversing at each, TNX was accompanied by a large drop in stocks.  TNX’s reversal from its 2013 highs never produced a stock selloff; but, then again, it didn’t quite reach the TL.

    Zooming in a little, we can see that TNX reached this trend line a couple of times in 2017: first, in March, when its reversal accompanied by a mild 78-pt drop in SPX, and again on Dec 20 in a reversal which never gathered any steam.  TNX was back to and punched through the TL on Jan 8.  It reached another TL (gray) drawn through other recent highs on Jan 22 at 26.65.  This was a potential top, meaning the bond folks breathed a sigh of relief.

    On Jan 26, however, it popped up through the gray trend line.  Not so coincidentally, that was the day that SPX peaked.Remember our lessons from TNX in 2015:

    1. reversing off the falling trend line represents a bearish turning point – it didn’t reverse

    2. breaking out above it is okay, as long as the uptrend continues – it did, but as it approached 3%, folks started getting nervous.

    3. a breakdown of the subsequent rebound is really bearish – we got a potential reversal at 29.43, but it has a long ways to go before reaching the rebound trend line, currently at 24.40.

    Interestingly, that TL intersects the falling red TL at about 24.60 on Mar 13, the day that CPI for February is reported.

    And this is where it gets interesting.  If TNX continues to rally, bond folks and equity folks will get nervous (the fiscal fiasco.)

    If it were to fall to the rising purple trend line and backtest the red trend line at 24.60, it might be somewhat bearish unless: (a) it reflects a big drop in inflation (in keeping with my oil and gas forecast) and (b) it rebounds there.

    If it fell below 24.60, the TNX lessons suggest that SPX would be in big trouble.  With a Fed meeting a week later, we can assume Powell et al would be focused on preventing that from happening.  But, as our analog suggests, this preceeds an important inflection point by just a few weeks.

    If TNX falls through 24.60, remember lesson 4…

    4.  stocks won’t bottom until TNX does

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    Now, onto our analog update. In our initial post and follow up from Feb 6-7 [see: Analog Watch], we anticipated SPX would rebound from 2533 (our downside target) to 2765 by Feb 14 and 2812 by Feb 23.  Instead, it bounced from 2532.69 to 2742 on Feb 16 and to 2789 — 23 points short and 4 days late — by Feb 27.

    An adjustment was clearly necessary, given that SPX and ES bottomed on different days.  We’ll try to reconcile the two, along with some economic forecasts which are definitely outside the norm.

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  • A Break or a Breakdown?

    The 10Y yield has clearly broken trend as expected, with a couple of Fib tests the only things standing between it and our downside targets.  Our 28.56 upside target from Jan 10 [see: China – It’s Not Me, It’s You] has officially yielded. This is what stocks were waiting for — a sign that interest rates’ climb past 3% wasn’t as certain as most analysts suggested.  ES broke out of its slump and pressed on to new highs, finally joining SPX in regaining its 2.24 Fib extension.

    This leaves our analog on track with our next targets easily in reach.  It also confirms the time adjustment that was suggested by the most recent dip and the redrawing of VIX’s (and everything else’s) path for the next six weeks.

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  • Why Rising Rates Are a Problem This Time

    A sharp drop in interest rates has traditionally been a negative for stocks.  The chart below shows that most significant declines in 10-year yields over the years were associated with steep drops in the S&P 500.  Usually, equity losses precipitated the drops in yield.  As stock declines accelerate, money flows into bonds — raising prices and depressing yields.  The crashes of 2000-2003 and 2007-2009 are striking examples.  So are the corrections of 2010, 2011, 2015 and 2016.

    There were several exceptions, when stocks were supported through carry trades and other algo-stroking forces: the 15% rise in SPX between Dec 2013 and Feb 2015, the minor 6.1% drop between Mar and Jul 2016, and the 2.5% rise between Mar and Sep 2017.

    But, significantly, not a single equity correction occurred without a concurrent and significant drop in yields.  This begs the question, then, of whether increases in yields are positive for stocks.

    In 2008, yields bottomed almost 2 months before stocks did in 2009.  But, in the 2000-2003 crash, yields bottomed 9 months after stocks.  Most other yield rallies from significant bottoms also lagged stocks: 4 months in Oct 2010, 9 months in Jul 2012, 3 months in Jan 2015, 5 months in Jul 2016.

    It would seem at least some bond buyers take a “show me” approach, waiting until the coast is clear in equities before shifting money back into bonds.  This analysis ignores the considerable influence that Fed purchases had on bond yields — an influence which the Fed maintains will diminish over the next few years.

    So, what are we to make of the latest spike in yields which began on Sep 7, 2017?  The 10Y rose from 2.03% to 2.94% through Feb 21.  SPX rallied along with it, up almost 17% by Jan 26 — then promptly did a gut wrenching 11.8% nosedive in only 2 weeks.

    Fortunately for the bulls, it got a strong bounce off its 200-day moving average and subsequently bounced to its 61.8% retracement. But, pundits seem fixated on the 10Y with rates nudging up against 3%.  Does it matter?

    In a word, yes.  Even though 3% is still well below historical yields, the level of debt has risen dramatically over the years.  The chart below shows the annual interest expense (the orange line) and the US’ rapidly growing pile of debt. Superimposed over each is the average interest rate (the black line) paid on that debt.

    Even though interest rates have flatlined since 2013, the expense of servicing the rapidly expanding debt has risen sharply — recently breaking out to all-time highs.

    Clearly, if rates were to normalize the interest expense would be unmanageable.  How unmanageable, you ask?

    Between 2000 and 2007, the average interest rate was 4.84%.  On the current $20.6 trillion balance, that would mean an annual interest expense of roughly $1 trillion.  And, we haven’t even begun to talk about the effect on consumer debt, the mortgage market, debt issued to fund corporate buybacks, etc.

    Obviously, an increase in the 10Y yield doesn’t immediately reprice the entire pile of debt.  But, it’s a clear step in the wrong direction.  And, investors are right to be concerned.  I imagine the Fed is also quite concerned — which is why I put a target of 2.85% on the 10Y back on Jan 10 [see: China – It’s Not Me, It’s You.]

    Not only did it represent channel and Fib resistance, but it seemed like a good tipping point for what I expected to be rising concern (one can hope) about our shaky fiscal situation.  TNX overshot it a little, which has been fairly common over the years (Feb 2011, Sep and Dec 2013, etc.)

    Those previous overshoots typically helped stocks get past resistance.  It might work this time, too.  But, judging from the mood out there, I don’t believe stocks will be led higher by higher interest yields this time.  And, I have trouble believing the Fed isn’t working to put a lid on long rates – yield curve be damned.

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    Related Posts:

    Where To Next?
    The End is (Probably) Near
    CPI: The Charade Continues
    Update on Bonds: Jan 29, 2018