The risk trade is coming off with a vengeance today. Equities, commodities and the C$ are all selling off on significant volume. As referenced here last week the 10-year Treasury yield that breached 2.60 last week this morning cut through 2.50 like butter.
The last cycle yield low of 2.07 in November 2008 is now back within sight. The ramifications of this are many. An important point is that the 10-year treasury yield tends to bottom about 2-4 months in advance of the stock market. The last yield bottom in November '08 preceded the stock market bottom in March 2009 by 3 months. The second issue evident here is the extreme rapidity of market moves in this environment. Trends that traditionally take many months to play out today move in a matter of days and weeks. This is what makes this climate so dangerous for passive allocations and traditional (read antiquated, unenlightened, arguably reckless) concepts of portfolio management.
The technical breakdowns across risk assets since April are significant and are ignored at great risk of peril. Even after the year to date declines, stock markets are today at nose-bleed premiums to where they bounced in March 2009 and even November 2008. The downside risk is looming large for capital left to drift here. The next test area for the S&P 500 on a closing daily basis is 1010 which would be 17% below the April 2010 high.
If it doesn't hold there (and we fear it won't based on the downside momentum presently in the semi-conductor index among many other leading indicators), then the next test will be 950. Look out below.
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I'm looking at Charles Nenner's website right now and find it pretty fascinating.
Let see how his Dow 5000 prediction will work out.
Once the ECRI data hits the fan in the next couple of months, I think it's very possible to revisit the 09 March lows at least.
The problem is that even if the market hits some sort of lows, ECRI doesn't see the future economic landscape bright at all going forward, specially about unemployment, because of the shorter and shorter cycles ….
i think there just a bit too bearishness right now and I think the market will suprise to upside and shake a lot of the shorts out of the market. Could start as soon as tomorrow. WHen you get too many commentators on tv talking how the market is about to fall expect he exact opposite to happen
The bearish sentiment is growing by the minute, that's for sure. I think short term the sentiment measure means a lot for about a week or two, or until it swings into the opposite, but in intermediate and long term earnings and profit growth what moves the market. The main direction of the underlying economy.
I don't even know what would I do without the ECRI…….??
I think that in the next few weeks we'll see a rally (albeit a suckers rally) on the s&p back up to the 1100 range and that should work off some of this short term extreme bearishness that has accelerated in the media and in falling stock prices. We're at the bottom of a trading range in any case. After that I think we head right back down possible to take out that 1050 support line in the s&p