Thursday, March 29, 2018

Despondent

You can often sense the change in the traders' mood by watching CNBC.  In particular, CNBC Fast Money.  The whole crew, except for permabull Pete Najarian, were gloomy and bracing for further weakness.  Steve Grasso said he sold.  So did Tim Seymour.  Guy Adami was dour.  It is sad that I have watched the show so many times that I remember all their names and their tendencies.  But this small sample size is a good barometer of the mood of Wall Street.  The traders and investors are getting despondent.

I play a lone hand, but I do have a few contacts who are not hard core traders, but are part time traders.  They are usually willing to trade counter trend but when it gets extreme, they start getting fearful.  I talked to one of them yesterday, someone who invested in the BRICs in 2007, and only recently got back into the stock market last year, has been shaken up by the recent volatility, especially the tech swoon.  After contemplating investing in bitcoin for most of 2017, he finally invested in cryptocurrencies in December 2017, despite my advice to not do it.

Anyway, these are just anecdotal things I am observing these days.  It is not scientific or data driven, but it adds to the data picture that I see with the put/call ratios (high), investor fund flows (heavy outflows for last 2 weeks), and sector rotations from tech to defensive names.

By the way, how soon we forget about the bond market when it is rallying.  The 10 year has quietly settled under 2.80%, below the 2.80-2.95% range that it was trading since early February.  That should calm the fears of an interest rate spike that many investors had last month.  The main worries are just the price action and the weakness in the FANGs.  That is definitely a more benevolent investing environment than last month when both stocks and bonds were going down together.

Wednesday, March 28, 2018

Extreme Volatility

Wow, another massive dump into the close yesterday.  They don't make anyone feel good when searching for a bottom.  There have been some savage moves in the afternoons during this selloff.  Seems like no one wants to hold overnight after a nasty close.  When the market is derisking and fear is prevalent, you get these kind of moves at the close.  When it gets this wild, without having broken the prior lows in February, and still above the 200 day moving average, it is a sign that the market has gotten too oversold and is due for a bounce.  It is hard to pick the bottom price, but it is easier to pick the bottom period.  This action feels like its within 48 hours of a bottom.  That is based on historical price action.

I have noticed that the VIX is not really reacting much to the volatile moves.  You would expect the VIX to be at least high 20s, or low 30s, but it closed at 22.5.  The VIX seems underpriced.  That is rare, but when you are getting 2% moves on a daily basis, the VIX should be priced at 32, not 23.  Perhaps everyone is already well hedged and the demand for put options is just not that high.  Or it could be market makers are selling volatility at these levels, expecting lower vol in the coming weeks. 

Usually the VIX traders foreshadow the SPX traders, so if they are feeling as if volatility will go down, that is a clue as to what SPX is likely to do in the near future. 

One positive sign for this market is that bonds are finally providing portfolio protection when stocks go down.  The 10 year yield broke the 2.80% support level and is current trading 2.76% as I write in overnight hours.  That is a positive considering the worries about risk parity de-risking.  Also, you have fund managers liquidating theirfavorite names, the Facebooks, Amazons, Googles.  That is usually during the final stages of a selloff. 

This is definitely a painful purging for the longs, and long term, a sign that this bull market is forming a big top.  But in the short term, expecting a strong countertrend rally as the topping should be a process that takes many months.  SPX 2580 is a strong support level and for those holding cash, would be a good risk reward level to buy.  I expect support there to hold, but ahead of Good Friday and the long weekend, the panic could get extreme today. 

For those already long, all they can do is just hang on and wait for the storm to pass. 

Monday, March 26, 2018

Fear & Loathing on Retest

How quickly the markets drops and rebounds.  That last hour selloff in the S&P was a classic panic derisking ahead of the weekend and reassess on Monday situation.  Of course, the market doesn't make it easy for those that panicked on Friday's selloff to buy back cheaply on Monday.  The catalyst for this weekend gap up could be Mnuchin talking trade negotiations with China, and of course walking back the emotional final hour selloff in the SPX ahead of the weekend. 

Except for those who are extremely long, many will be disappointed with this big gap up.  I am sure those who were holding a lot of cash were hoping for a big down open to buy into.  From the zerohedge article about institutional capitulation, it seems like most hedge funds are running higher than normal cash levels and have already reduced their beta exposure as of March 21, much lower than at any point this year.  That was before the Thur-Fri Mar 22-23 1-2 punch of a selloff that crushed the SPX over 100 points. 


This makes me more confident that the retest of the Feb 8 closing lows on SPX at 2580 should hold, and could spark a beta chase when the double bottom becomes more obvious.  I am already fully loaded so there is nothing for me to do.  If I was holding a lot of cash, I wouldn't chase this gap up and  I would look to buy any intraday dips on the day.  I am not going to daytrade it, so I will just hold my longs even though it should dip signficantly intraday off this big gap up. 

One thing I have noticed on the selloff last week was the very limited protection that long Treasury bonds provided.  That is a bit of a troubling sign for bond bulls, although I am still bullish on Treasuries, I think an equity rally in the coming weeks will probably cause 10 year yields to trade back towards the tops of its 6 week range, above 2.90%. 

On the trade war, it sounds scary but as I have mentioned before, there is no way the corporations and the bought for politicians will let these tariffs get large enough to become meaningful.  It will end up being another political show which effectively does nothing for American manufacturing and just ends up being neutered by corporate lobbyists.  There is no bite in this populist dog when it tries to chew on US multinationals.  They are the power center of US politics.  They will win, as always.

Friday, March 23, 2018

Wearing Out the Dip Buyers

It has been wave after wave of selling in stocks since the Goldilocks NFP and CPI came out.  Those just happened to be right near the top, where you had tons of ETF inflows into equity funds.  Figured that after that kind of massive buying, you would get a correction off that move.  Just surprised at how big the blow back was after such furious buying.  I was definitely premature with the long entry on Tuesday, thinking bottom before FOMC and then rally afterwards after the uncertainty was lifted.  But the fundamentals are shaky for stocks at these overvalued levels, so its not going to react the same way as it did the last 9 years.  Its going to take more selling waves than in the past to clear out the overleveraged and the don't ask don't tell buyers. 

But it has been 8 weeks since the top in the S&P on January 26th.  Usually previous corrections in a strong uptrend don't last more than a month, but in the few cases that they do go beyond that, the correction is usually near its end after 8 weeks.  From a time perspective, the correction has mostly run its course.  However, we haven't gotten that double bottom which has marked the end of a lot of the previous panicky corrections (Aug-Oct 2011, Aug-Sep 2015, Jan-Feb 2016).  That either means that double bottom is coming ahead soon or we're just not going to get it.  I am definitely leaning towards the not going to get a retest double bottom, but I can't rule it out considering the weakening fundamentals of this stock market, and the tighter liquidity conditions. 

All one can do is play the probabilities, and the odds favor holding a long SPX position at these levels.  I added at the close yesterday at 2645 and overnight around 2630, so I am fully loaded.  Checking on the put/call ratios, they are similar to the tariff tantrum selloffs 3 weeks ago, which is high, as expected.  It will be interesting to see today's price action, it seemed panicky in overnight trading so it feels like a bottom is just around the corner. 

Thursday, March 22, 2018

Last Selling Wave

This looks like the final selling wave of the move.  The last selling wave is usually the sharpest and most panicky.  Last week's down moves were mostly contained and didn't scare anyone.  Monday hiked up the fear gauge another notch higher.  Now we're in the final wave of selling, which is when retail starts getting scared and puke out their positions.  I assumed that most of the selling would be done ahead of the Fed, and that post-Fed, there would be a rush back into risk assets.  Even with Powell meeting expectations and not signaling any surprises, stocks sold off anyway. 

Jerome Powell revealed as little as possible in the Fed statement and his press conference, basically confirming market expectations.  Obviously the crowd (including me) was set up expecting a bounce after the Fed, and the weak hands just dumped it seeing that they weren't getting that bounce. 

I underestimated the number of weak hands out there, and how popular dip buying has become.  Typical late cycle behavior, and I must admit, I have fallen a bit into that trap.  I am holding long, but its not a big position yet, and I don't really want to add more until we see some true panic.  It looks like Tuesday/Wednesday's small up move was just a dead cat bounce setting up and recharging for a move lower today and perhaps tomorrow.  That would probably set the stage for a more reliable bottom. The traders on CNBC don't seem concerned at all, which is troubling to see after 5 down days and a very weak 2 day bounce.  I wouldn't trust any rallies in the morning off this gap down. 

It looks like 10 year yields have found a ceiling in the 2.90% area, and will probably grind lower for the next 6-8 weeks.  I am bullish on bonds here. 

In one of those precarious positions where I believe the market will be higher in 2 weeks, but probably lower by Friday.  Thus, I will stick with an average sized long position and wait for a bigger down move to add.  There is some decent support at SPX 2680, but since we're so close to that level, they could blow right through to stronger support at 2650-2660 zone.  I will definitely add there.  Price target on the long is still 2790-2800 zone, but it probably will take longer than I expected to get there. 

Tuesday, March 20, 2018

BTFD Time

Did not expect a huge dump yesterday, and then a last hour rally that took back half the losses.  There are plenty of dip buyers lurking in this market, and they showed their hand yesterday afternoon, wasting no time to buy when SPX got to the 2700 area.  The equity put call ratio finally got elevated, the first time during this selloff which started last Tuesday.  Some of it was re-hedging after options expiration, but a decent amount of volume that was looking to buy some put insurance ahead of the Fed meeting and also shorts speculating on further weakness. 

I was waiting for a weak close to load up but we had that strong bounce back into the close, so I didn't pull the trigger.  But my buy trigger finger is getting itchy, and I would like to get long exposure ahead of the FOMC meeting, which I think is overly feared at the moment.  While Powell doesn't seem like a guy who follows the Fed "baby the market" script too closely, some of the recent economic data (home sales, retail sales, Atlanta GDP) coming in a bit weaker than expected will temper his hawkishness.  Also, the market is pricing in 3 rate hikes this year, and it will take a lot of hawkish rhetoric to bump up more than that. 

Recently, the LIBOR/OIS spread has been blowing out, much more that normal, to 56 bps, when it was trading at 28 bps at the end of 2017.  Some will say this is just US corporate cash repatriation after the tax cuts passed, but it seems like there is just not that much dollar liquidity overseas.  Even as the US financials have been performing strongly, Deutsche Bank is already down 20% this year.  The central banks are reducing stimulus to the economy, and it is easily forgotten just focusing on the day to day price action.  I have stated this before, if I am a stock investor, give me monetary stimulus over fiscal stimulus any day. 

When the government runs a huge deficit and issues trillions in Treasuries, without Fed QE, that is money that needs to be taken from the hands of private investors.  That is money that would otherwise be used to support financial assets.  That is why you are starting to see tighter liquidity conditions, because the government is taking up some of that liquidity that private investors would have been able to use. 

Looking to buy the dip today, don't expect a move down to SPX 2700 today, but anything close to yesterday's close at SPX 2713 will be enough to get me buying.

Monday, March 19, 2018

Pre-FOMC Selling

They are setting up for the FOMC meeting.  Selling stocks and bonds together.  Post opex weakness and FOMC coming up on Wednesday is a double whammy on SPX.  There is decent support in the 2725-2730 area .  I was considering buying the dip on Thursday but I decided to wait because of the complacency I was seeing in the low put-call ratio on the day.  We'll see how traders react to today's weakness, if the put-call ratio can get higher today than last week, I will consider buying near support around 2730. 

Still thinking about the game plan ahead of the FOMC meeting Wednesday, but I am leaning towards a rally in stocks and bonds after the meeting as I don't expect Powell to be as hawkish as he was in his Congressional testimony.

Thursday, March 15, 2018

Get Ready to Buy the Dip

How quickly the optimism fades after the Goldilocks nonfarm payrolls report and CPI.  It has been 5 weeks since the early February panic, and we've yet to have the retest that many were looking for.  If SPX goes up to 2900 next month, then it moves down to 2530 in the fall, would that be considered a retest? 

The market has been making higher highs and higher lows since the February 9 intraday panic bottom.  Nasdaq 100 has actually made a new all time high since then. 10 year yield has stabilized in the 2.80%-2.90% range.  While not very pessimistic, the general public is definitely not feeling that comfortable or complacent at this stage of the rebound. 

It looks like the February plunge did its job of shaking out the overmargined and weak hands, and grinding back higher.  Not as smooth of an uptrend as the ones in 2016 or 2017, but still strongly upwards. 

I am not a raging bull, but I am an opportunistic buyer today if we get an intraday dip to SPX 2740-2745 area.  I would hold that long for a target around SPX 2800.

Wednesday, March 14, 2018

Don't Forget About Bonds

Remember when everyone was worried about 10 year yields breaking 3%, which would hurt stocks?  Quietly, the bond market has settled down and is slowly flattening, which all things being equal, is a more bullish sign for bonds than a steepening.  When bond investors are more willing to buy duration, it means that they are more committed to deploying funds.  

Looking at Fed funds futures, currently the Jan 2019 futures is priced at 97.85, which implies a Fed funds rate of 2.15% on Jan 31 2019.  Given the current range of 1.25-1.50%, that is basically 3 rate hikes this year.  If you go out further to Jan 2020 futures, its 97.48, implying 2.52% on Jan 31 2020.  So 1.5 hikes priced in for 2019.  Beyond 2020, the curve is basically flat.  So the market is pricing in a terminal Fed funds rate of 2.50%, while the Fed forecast is 2.75%.  I believe any rate above 2% will be too tight for this economy and will quickly lead to an inversion of the yield curve. 

The pricing in the short term interest rate markets seem too aggressive, and assumes that the Fed will keep hiking even with the economy slowing down or if stocks start correcting.  I doubt that this Powell led Fed will just keep hiking if stocks are in a downtrend.  The market is pricing in a hawkish Fed and it would be surprising if they actually went through with 4 more hikes in this hiking cycle.  I would lean bullish on bonds, and that should help stocks in the medium term.  

Yesterday's gap up was a short term shorting opportunity on "Goldilocks" CPI and the market promptly obliged by selling off from SPX 2800 resistance.  There seems to be too much optimism in the short term, so there is room for a pullback down to 2730-2740, the pre nonfarm payrolls levels.  But this market is now back in an uptrend and weak hands seem to be mostly out, so it could just grind higher to 2870 by April without a bigger dip.  I would rather be buying dips than shorting rallies for at least the next 4 weeks.

Monday, March 12, 2018

Goldilocks

That nonfarm payrolls number got some traders excited, as we are now back to post crash highs in the SPX.  The bulls will not go down without a fight.  After the big corporate tax cuts, the coming massive corporate buybacks will provide support for the market during dips.  There will have to be some notable signs of an economic slowdown before you will get down moves that last for more than a few days. 

Also, on a strong nonfarm payrolls number, the 10 year yield didn't go up much, which is an equity positive.  If the bond market calms down and stabilizes under 3% 10 year, you will at least get a consolidation at the top for stocks, meaning SPX going back to at least the all time highs at 2870. 

It is going to take time to form a top like most bull markets.  It won't be as easy as making a blowoff top and going straight down like you see on some other markets.  Also, the SPX is the strongest major stock market in the world, so it is acting like what strong markets do, which is have brief corrections that lead to sharp rallies. 

I suspect that the rise in bond yields is already starting to have an effect on household borrowing.  Just look at the US personal savings rate over the last 10 years.  Its been going down rapidly since the middle of 2017.  The US consumer is not in a strong position, and if stocks happen to go into a bear market, that will be the knockout blow. 



Friday, March 9, 2018

Choppy Bottom

It has been choppy trading since the February 9th V bottom, as the market has gone up as high as 2789 and gotten as low as 2647 over the past 2 weeks.  And like most SPX pullbacks in a long term uptrend, the market has come out of the chop towards the upside.  I wasn't aggressive buying dips during this choppy period just because of my longer term bearishness.  But I sure was not going to be shorting aggressively either.

It is a tricky juncture that we are in.  The long term uptrend has been so strong and going for so long, that you just don't make a blowoff top and reverse down to where it was trading in 2016.  Maybe that is how speculative manias like bitcoin trade, but that's not how equity indexes trade.  Equities are such a huge asset class controlled by both fast and slow money, that trends take a long time to fully mature, especially on the upside. 

If interest rates stabilize, which is probably the most likely scenario, then you can see equities go back above 2800, and test the all time highs.  The markets are too far above 2530 for there to be a retest.  You had enough "scary" news to form a good bottom, beginning with the tariff talk, and out of nowhere, a huge dump in after hours on Cohn resignation.  That made no sense, and showed how nervous and emotionally charged this market is, but I still didn't buy because I was waiting for 2680, and thought there could be a little bit of panic of nonfarm payrolls and CPI next week.  Of course, it never got there.  Sometimes the market doesn't oblige your plans, and its usually best to just let it go and look for the next setup. 

SPX is back above the 2760 level, and it is looking more and more like a grind higher is in store for the next 4 weeks.  Since I don't want to chase any buys on this thing, I will just wait for another opportunity, or just stick with individual stocks.  I expect ES trading to be a lot less interesting in the coming weeks.

Wednesday, March 7, 2018

Suddenly They Care about Cohn

You cannot make this stuff up.  Who would have thunk it.  The S&P, after rallying 80 points from the Friday morning tariff panic bottom, is short term overbought, and ripe for a pullback ahead of the newly feared nonfarm payrolls report.  It is the perfect time for Cohn and his Goldman Sachs buddies to get short a bunch of S&P futures and then drop the news of the resignation.  I don't even think Cohn's buddies would have thought the market would have dropped that much on his resignation news. 

A 30 point drop on a Cohn resignation tells you how nervous investors are here.  The psyche of the fast money stock traders is fragile.  The value investors want nothing to do with this market.  The HFTs and deep pocketed futures traders are having a field day fading the fear, buying inventory as retail pukes out their stocks, and selling it back to them after the market goes back up and everyone is relieved.

The rinse and repeat cycle is near its end however.  There are only so many times you can trick retail into buying tops, and selling drops, before they just throw in the towel and stay on the sidelines, which is usually the time when the market is ready to slowly grind higher, climbing the wall of worry.  We are right around that point.  You can feel it in the growing disgust the media is spewing over these tariffs and a potential trade war.  Never mind that they've never experienced or studied tariffs and trade in their lifetime.  Everyone these days is a 5 minute expert on the latest topics that moves markets.

The corporate PR machine has completely brainwashed the media and by osmosis, the public, by denouncing tariffs and fear mongering about how bad trade wars will be for the global economy.  Completely ignoring a much more powerful force in trade,  currency devaluations.  Europe, Japan, Switzerland, etc. have been using QE to bring down the value of their currency for years.  Sure, the US started it, but their QE was to keep interest rates low in the face of massive budget deficits and huge Treasury supply after 2008.  It is clear that the main intent of the ECB, BOJ, and SNB are to weaken their currency to boost exports, which is a form of trade war.  And to say that it hasn't affected US stocks is an understatement.

There are many more important things for this market than global trade.  And even if it was as important as everyone says it is, the multinational corporations have so much political power that they will stop anything drastic from happening anyway.  After all, Washington DC is bought and paid for by the corporate lobbyists.

The price action after the 10 year yields surged higher in early February and the subsequent plunge in global markets, and the price action after Trump's announcement on tariffs gives you an idea of what is more important.  Interest rates are about 500 times more important than tariffs.

I was contemplating a short on Tuesday near 2730 but since we're probably near the end of this selloff period, I decided to wait.  As I said before, it is a time to look to buy dips for the move higher after this selloff period passes.  A dip down to 2640 would be ideal, but very unlikely at this point.  Perhaps a move down to 2660 is the most we will get, and even that looks like less than a 50% shot.  I may have to increase my limit prices to 2680 to be able to get any longs before the selloff is over and the market grinds higher.

Monday, March 5, 2018

Nearing a Bottom

I would not extrapolate too much from Friday's price action but based on the amount of time that has passed since the February 5th closing plunge and the inability of the market to get below 2640 tells me that looking for a bottom is the best approach now.  The time to look for shorts has passed, and unfortunately, I wasn't able to catch the low risk short last week.  That doesn't mean that we are going straight up from these levels, but it does mean that the more forgiving side, which is usually being long, is even more forgiving at these levels and at this time point in the rally. 

In a market with a steeply rising 200 day moving average, the selloffs will usually not last more than 1 month.  It has been 4 weeks since the February 5th panic, and that means a bottom is due almost any day now.  If I was forced to hold a position for the rest of the month, it would be long.  If I had to hold now and sell in 3 days, I would probably be slightly short. 

Interest rates are starting to stabilize, which is another positive sign for the equities.  Even with a hawkish Powell, bonds have regained their negative correlation to equities, and have done their job of providing downside protection when stocks go down.  There is still the nonfarm payrolls number on Friday and the CPI on Tuesday, but they will probably not be big market movers because the market is now prepared for any hot numbers to come out.  Very different than last month when the market was much more complacent about economic data. 

It would be ideal to have stocks dip down to strong support around 2630-2640 for a low risk long entry, but that might not happen.  If we don't go down this week, it probably will just keep grinding higher for the rest of month.  Get ready to buy this week if the last remaining weak bulls throw in the towel. 

Friday, March 2, 2018

Suddenly Tariffs?

Wow, talk about bring out the red herrings.  Let's suddenly forget about Jerome Powell, and talk about some steel and aluminum tariffs as causing a trade war?  You can't make this stuff up, these excuses for selloffs these days.  Globalization is not the reason the bull market has been going on for 9 years.  It is easy money, and eliminating corporate competition, neither of which is affected by some steel and aluminum tariffs.  In fact, those steel end users who can't handle an increase in input costs will just be more competition eliminated, ultimately resulting in a bunch of quasi-monopolies. 

It is as if the globalists think the economy has not had a recession in 9 years because of globalization.  Supposedly its a positive.  All it's done is slow down the road to total corporate welfare, which is the main goal of Trump, not creating a few steel and coal jobs. 

So why the abrupt weakness?  First, the bulls got too aggressive looking for a V bottom ahead of Powell's testimony, and they ejected quickly.  Then Powell disappointed the easy money crowd because he actually follows the mantra of data dependence, instead of just saying it.  The recent economic data has come in hotter, and he has responded by being more hawkish.  An actual Fed chairman who is somewhat neutral and not so dovish is a shock to the system after 20 years of Greenspan, 8 years of Bernanke, and 4 years of Yellen.  All those predecessors were stock market servants, delivering what the stock investors want.  Right now, there is uncertainty over whether Powell will be another stock market servant, and that is enough to get investors nervous.  He could eventually end up being another stock market servant, but the odds just went from -300 to -120. 

It is interesting to see that bonds after the initial selloff on the Powell testimony, has made back all those losses plus more, while stocks just keeping selling off.  A hawkish Fed chair can actually be better for the bond market than a dovish Fed chair, contrary to popular opinion.  If you slow down the economy, 10 yr rates will go lower, not higher.  People miss that point when debating whether Powell will hike 3 or 4 times this year.  If I was a long term bond investor, I would much rather have Powell aggressively hike the US into a recession than be dovish and hike too slowly keeping the bubble going. 

We hit 2660 yesterday, which was quite a drop.  And we've got the gap down today.  Its risk off Friday, so who knows how far they will sell it down.  I see strong support at the 2630-2640 zone, but will wait till next week to look for a dip to buy.  There are too many events coming up in the next 2 weeks for me to jump the gun and buy here.  I would wait till at least next week for those dip buys. 

Thursday, March 1, 2018

Powell Aftershock

Well it wasn't enough for it to get down to 2740 to adjust to the new Fed chair.  Even with bond yields going lower on the day, the S&P lost another 1%.  In a straightforward manner, he implied that his put strike price is much lower than Bazooka Ben or Dovish Yellen.  He has bought into the inflation economic boom hype.  As I mentioned before, March is loaded with economic data and meetings that could scare the bulls.  Usually, ahead of the uncertainty, the market sells off, especially when it is this skittish. 

If Powell doesn't back track from Tuesday's statement, that tells you that he isn't as sensitive to stock market volatility as his predecessors.  That would be a gift for us traders, as the central bank put has made trading S&P futures much harder than in the past.  It would be refreshing change to see a Fed chairman who doesn't placate the stock market when it has a tantrum.  But its still too early to tell, and his March meeting will provide us a lot more information than the Humphrey Hawkins testimony.

This week, I played it too conservatively, and totally missed the screaming short at 2780-2790 sell zone.  I believed the media hype about Powell being Yellen 2.0 and that made me scared to be short of his Congressional testimony.  It seems like I wasn't the only one afraid to sell ahead of the event.  Anyway, I missed the short, and if somehow the market trades higher by Monday up to 2750-2760, I will look to put on a swing short for a move back down to 2640-2680. 

From a timing perspective, the peak of the fear should be late next week, perhaps next Thursday.  It depends on how the bond market behaves.  If the 10 year yield goes back above 2.90%, the S&P will have a hard time rallying and will probably drop below 2700.  The bond market is driving the equity train right now, so that is the market to watch to get a read on equities.  It should be like this until the FOMC meeting in 3 weeks. 

SPX 2700 is fairly strong support, and with first day of month inflows, it would not surprise me to see a rally today, perhaps back up to 2730.  I would be surprised if we rally above 2740 today.  But this is a crazy market, so anything is possible, and the bulls are that stubborn, so you can never rule out an irrational rally.  On the downside, you are looking at 2680, which was the bottom post Fed minutes last week.   Below that, 2640 area near the bottom post CPI panic a couple of weeks.  It would be quite shocking to see it bust through that 2640 level, but it could be possible if the 10 year goes above 3.00% and stays above it for a few days.  But I am not that bearish on bonds, so I would fade a move in both stocks and bonds if we approached that 3.00% level.