Thursday, September 15, 2016

2120 to 2160

That is the range that has been carved out.  Until FOMC, we should stay within those bounds.  Thus, I am leaning towards going long around these levels.  Not going to go long for much size, as upside is limited.  Will also probably lean short if we get towards 2160-2170 level, although will wait till Fed proves again that they are market lackeys.  Should get a reflexive pop on Fed inaction next Wednesday.

The bond market is the center of attention these days.  The volatility in the 10 year yield is actually a bit lower than it was from 2007-2015, but this uptick in rates over the past few trading days has gotten the media into a little frenzy.  It is actually nothing like it was last May/June, and yet they make a much bigger deal out of it this time.  Of course, the reason is because stocks are reacting quite negatively to these higher rates, unlike the action last year.  

It does show you how much this market is dependent on low rates to fuel the rally.  Just another factor that is a long term negative for this market.  At these high valuations and deteriorating fundamentals, even a minor move higher in interest rates upsets the equilibrium.  You are getting closer to a situation where you need near perfect conditions to keep this bull alive.


MM111 said...

Do you think we could still get lower before we get a proper rebound?

Market Owl said...

It was an early finish for me so just saw this comment. Yes, we are not going to get a sustained rally till we break lower ground. With presidential election uncertainty, you are likely to see a clean break of 2100 before we hit bottom.