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Oof! Bang! Powell!

Published 10/04/2018, 09:22 AM
Updated 07/09/2023, 06:31 AM

All year long, the “sequence” I’ve been suggesting has been along these lines:

  1. The world has never been so choked in debt, with the US along over $21 trillion in hocking and adding a over a trillion per year;
  2. The bond market is in a terribly bearish formation, and bonds should fall;
  3. Thus, interest rates will rise;
  4. Rising interest rates will suffocate the economy;
  5. Equities will, in turn, fall

Well, parts 1, 2, and 3 have been doing just dandy, thank you very much, but part 5 sure has been slow to wake up. Indeed, the Dow Industrials was at its highest point in the history of humanity only a few trading hours ago.

It is thus a pleasant surprise to wake up to this for a change:

US Stocks

I am not exactly celebratory about this, however, because for the first three days of this quarter (that is, this week so far……..) the market and my portfolio have had a bizarre relationship. The market will open strong. My portfolio will show a big loss. And then the loss will shrink, and shrink, and shrink (even if the market itself isn’t particularly doing anything) and then end the day profitable. Thus, seeing a sea of red before the opening gives me a uneasy feeling.

For me, watching the bond market tumble has been very encouraging. We are right on track with what I’ve been predicting.

US Bonds

Equities have defied this, maintaining (this morning notwithstanding) an inverse correlation, in spite of the roaring interest rates. I guess people are still buying the ‘rising interest rates must mean the economy is great” narrative.

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I will say, however, that there is one crucial level on the ES to watch, which is 2870. Marked in yellow below, this zone represents an important support level. If we can break it, that will be an important failure of the bullish breakout.

ES

It was only a couple of weeks ago that I was wringing my hands, hoping that bonds could somehow break their OWN support level, and they did. Once that happened, prices fell right into line. Here’s hoping the same happens for equities.

I am currently positioned with 63 short positions and have 28 others I’d like to enter. Unless this day is an all-day buy-fest, I suspect I’ll end the day more aggressively short than even now.

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