“Technicals Finally Flushing Bears Out Of Hibernation?” or “Inverted Yield Curve Stoke Recession Fears”

“Technicals Finally Flushing Bears Out Of Hibernation?” or “Inverted Yield Curve Stoke Recession Fears”

[vc_row][vc_column][vc_column_text]The last two weeks I wrote about the global technical field of play and the negative divergences littered about it. The gist was the two month rally was essentially a Bear Trap luring the Buy The Dip crowd back into complacency. The recent overwhelming evidence made me a little nervous with the stock markets propensity to pull the rug.

The rally lingered longer than I would have liked (took short positions too early) and the Fed’s dovish announcement Wednesday indicated they had equities back…again. A decade of no true price discovery was not enough, propping equity prices has now become a mandate? That’s bad news for the Bears and the action Thursday appeared to confirm the Bulls appreciation with a 1-2% rally across the board.

That made the total 5+% added to the FAANG powered NASDAQ 100 for March. It seemed the tech titans were ready to drag the rest of the market to new all time highs sooner than later. Thursday afternoon I was making plans to close my shorts as efficiently as possible. It appeared the negative divergences were back in failure mode as they have mostly been since 2009 when the Fed inserted QE into the system.

Friday brought an advance in the Treasury Bond breakout I wrote about last week. This spike inverted the yield curve making the 3 Month T-Bill higher than the 10 Year. This inversion has been accurate predictor of a recession on the horizon.  I noted the 10 year had cleanly broken out last week while the longer maturities percolated. Friday morning the launch sequence was activated and TLT (20+ Year Treasury ETF) literally blasted off to a 2½ year high. This has the look of an intermediate term (3-6 months) move that dovetails with equities negative divergences. Appears we may have an inversion for a while?[/vc_column_text][vc_single_image image=”1243″ alignment=”center”][vc_column_text]I discovered one more bearish divergence worth noting. As I mentioned the NASDAQ 100 made a convincing new high Thursday led by FAANG. The index is capitalization weighted, bigger companies bigger weighting. When you assign all 100 stocks equal weighting the March move is not as impressive. This possibly lends to the bubble that the FAANG stocks are. [/vc_column_text][vc_single_image image=”1244″ alignment=”center”][vc_column_text]Sorry to be such a downer, especially after cheering the Bulls on the last two months. The good news is if the pattern does not play out the opportunity cost is <3%. If it does play out we will be reinvesting funds at much less expensive levels.

The body of technical evidence points to levels below the Dec lows IMO, about a 20% decline. I would not be surprised if  the Fed/PPT inserted itself in some fashion (constant dovish talk or even a rate cut) to diminish the damage to maybe 10%. Waning investor confidence usually flows into consumer confidence when corrections get steep. The economy does not want that and neither does the Fed or President Donald. He’s got a re-election campaign to run.

Final Thought – Bye Bye Bulls!

[/vc_column_text][vc_single_image image=”1245″][vc_column_text]More later,
Max Power

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Disclaimer: Remember everything I said could be wrong, the market always has the last word.


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