Someone once said that we are only one U.S. Treasury auction away from disaster. Despite the terrible inflation reports of the past few days, the stock market was going along fine yesterday until the U.S. Treasury 30-Year Bond auction yesterday afternoon. Let’s say there was a “coverage” problem. In short, demand was weak, and the Treasury had to discount prices more than expected to sell the bonds.
Bottom line – it took higher rates than forecast to sell the new, 30-year treasuries. Given that we sell most of the bonds to ourselves (something that would make even Bernie Madoff jealous), it turned out to be quite a task to sell anything to the few independent buyers who showed up. That is not a good omen.
Or, I jinxed the market by pointing out that the sellers had not shown up in earnest on Tuesday. Trader’s choice.
And this raises my biggest dilemma. Rates continue to sit on the precipice of a head and shoulders reversal pattern, which forecasts they could double. It is not easy to discern the next move because it is such a broad pattern on the slow-moving monthly/weekly charts. One thing is for sure, though; the yield curve is inverting, which could forecast a recession. But inflation isn’t decreasing either. That presents the possibility of stagflation of the dastardly 1970s variety.
On a positive note, some are celebrating that Jimmy Carter lived long enough to pass the title of the worst President of all time. It does not get much worse than this for the average person. Utility bills will be up 40% this winter over last. Food prices have doubled in many cases. Prices at the pump are up 35%. Rents are up 30% in many areas. Housing prices are up 20% in the last year, as are used car prices. Premiums of 10% to 20% have been added to the price of new cars for “Special Transportation Costs,” if you can even get the new vehicle you desire. And the shortages have only just begun.
I try to be fair. I don’t think the current administration is at fault for demographically driven housing inflation, but I don’t have any good excuses for the rest of their policy disasters. The new infrastructure bill is likely to put fuel on the fire.
Mercifully, the bond market is closed today along with banks as it is Veteran’s Day. Trading will likely be light and manipulable in the equity markets. I usually don’t day trade on dull volume holidays as the hedge funds can play games and rip your face off for no good reason. Be especially careful if you venture forth.
Swing traders should continue to hold cash. Our brief foray into the DBC and IWM yesterday on the five-day line failed, as did the line itself. It was a case where we were thankful for the stops, as the market continued significantly lower and closed on the lows. But overnight activity responded with a session that did not make a new low below the regular session low and is currently trading on a substantial gap higher with about 95% of the range above the settlement.
When the sentiment is short-term bearish, and the Globex session fails to make a new low, that is a good sign for the bulls. It is even better when the market stages a strong rally on net long overnight inventory.
Use yesterday’s halfback at 4552 as your bull/bear threshold for day-trading today. The ONH 4461.50 is your first upside target, then yesterday’s high at 4678 or so. Going south, the first target is the ONL at 4638.75. The next target is yesterday’s low at 4625.25. If that level falls, then the status quo is maintained, and lower prices lie ahead in this pullback.
A.F. Thornton