Living with the Risk

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S&P 500 Index Futures – Trend Reversal Imminent

10-year treasury rates rocketed yesterday. Perhaps we finally found the Achilles heel of this market. Another way to look at this is that the powers that be are selling bonds aggressively pushing yields higher, which pushes the dollar higher and gold lower. Now I have my gold answer too. I was trying to reconcile what appears to be a 7-year gold cycle peaking.

If rates move too far (say the 10-year tops 1.5% from its 1.3% current level), or they move too fast (say by Friday), it may be curtains for the stock market. Wasn’t it just a few weeks ago we were told that the Fed had rates “under control?” Recall what I said a few weeks ago – add $279,000 billion per year to the deficit for each percentage point rise. What will the Fed do now?

I owe you a discussion on MMT or Modern Monetary Theory – the left’s new “this time its different” argument. Deficits don’t matter. We shall see.

Meanwhile, I avoided the XLF and XLE yesterday – not because I want to – but because the market may grab onto our coattails and drag us into the water. I am not giving up – just evaluating whether I can live with that risk.

Last night’s Globex trading was flat until just a few minutes ago when retail sales beat estimates by a lot, as did industrial production. This has caused a small true gap lower, putting gap rules into play. Good news can be bad news for interest rates.

Yesterday’s RTH session came down into the prior large balance area but really only inside Friday’s spike high. There was no real acceptance back into that larger value area. Overnight prices have explored that a bit further but are currently trading back outside.

Today’s session will be all about whether or not the market moves back into balance or not. If so, then there is potential to move back to the opposing end of balance at 3878.50, which is the February 10th regular session low. So today is all about testing the overnight low at 3910 – hence in practical terms – a test of whether the 3900 roundie is solid or not.

Interest rates are now the glue holding this house of cards together. As Goldilocks would say, we want our interest rates served not too hot and not too cold.

A.F. Thornton

Living with the Risk

AF Thornton

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