The Market: Zooming Out
Rates have changed the game. Playing for bounces from the long side here is as misguided as playing for pullbacks in June and July.
Discussion
On June 17, 2022 FRB Minneapolis President Neel Kashkari rolled out 200 bps TIPS 10s as the necessary level of restraint the Fed needed to engineer to bring inflation back to 2% on a sustainable basis. This morning TIPS 10s hit 199 - close enough, especially for Biden government work - but more importantly, TIPS 30s breached the 200 mark with ease, hitting 211.
As highlighted in the post below, Andy Constan has been THE thought leader on the interaction between the Fed’s QT program and the Treasury QRA. If you study his work in conjunction with the hawkish blitz of FED commentary in recent weeks, you know full well that this move in rates is the REAL DEAL.
As discussed in the post below on how SPX traded in the lead-up to the 1987 crash, a big move up in rates does not at all mean an imminent crash in stocks. There will be a snap-back rally or two…
…But not from here. Not with this many people (MYSELF INCLUDED) looking at oversold signals and “well supplied VOL” as reasons the market needs to bounce.
The 1987 analog says the 100dma is good support, somewhere around 4200/4300.
Playing for a bounce from the long side with a market this at risk is as misguided as trying to short in June and July. Trading from the short side until the % of stocks hits 5-10% (currently 41%) makes sense.