Tuesday 24 April 2018

Yields used as an excuse

US equity indexes closed significantly lower, sp -35pts (1.3%) at 2634 (intra range 2683/17). The two leaders - Trans/R2K, settled -2.1% and -0.5% respectively. VIX settled +10.3% at 18.02. Near term outlook offers a full gap fill to sp'2604, before swinging back upward.


sp'daily5



VIX'daily3



Summary

Yesterday saw the sp'500 settle with a black-fail candle. Indeed, many individual stocks (including CAT) settled Monday with a black-fail candle. Those are inherently subtle warnings of s/t bullish exhaustion, and lean to the bears. Not always... but often.

Today opened moderately higher, with an early high of sp'2683, but with the 10yr yield hitting 3.00%, the sellers started to appear...

Santelli noticing the 10yr finally testing 3.00%

Lets be clear though, today's weakness was nothing especially dramatic. The VIX didn't even hit the key 20 threshold. Indeed, if you looked at the daily chart for the sp'500 yesterday, you should have noticed we had a handful of downside equity price gaps due to be filled. Today's yield at 3.00% was just used as an excuse the market needed for some sig' cooling, before swinging back upward.

If Wed' opens higher, I'd look for renewed cooling to around sp'2604, with VIX 19/20s, whether tomorrow or Thursday.
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US 10yr bond yield, monthly


Regardless of the s/t, a move to at least 3.50-3.75% looks due on a 3-12mth outlook.That will clearly be a downward pressure on equities, but that doesn't necessarily mean equities will be net lower by year end/early 2019.

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Goodnight from London
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