Stocks ripped higher again yesterday; there is absolutely no reason for this performance the last three days; nothing has changed. Rates didn’t suddenly plunge; the market went from dead for sale last week, and on Monday, to all of a sudden, investors are scrambling to buy stocks.
Maybe the inline CPI reading on Tuesday morning gave the equity market the confidence that inflation isn’t going to be a topic on the bond market’s mind. The bond market certainly doesn’t reflect that view.
Today we get PPI, which is expected to come in at +2.7% y/y, so we will have to wait and see the results are, but if that number comes in north of 2.7%, the equity market might have a swift and sudden change of mind.
There is still a big appetite to short the 10-year with the overnight Repo rate still in negative territory. So either the bond market has lost its mind and is totally off base, or the equity market is in for a big shock when the 10-year rate surges higher again.
When it comes to economic or Fed-related things, should you trust the bond and currency market or trust the equity market? I would take the bond market every day of the week over the equity market.
If the prices paid index in the ISM manufacturing report is a sign of what is to come, and the PPI runs about a month behind the ISM report, perhaps we will get a PPI number north of 3% today. I guess we will find out.
Would I want to chase the equity market higher ahead of this number with the VIX at 21.9 and nowhere to go but higher? No, I would not be chasing stocks higher.
10-Year Yield
There appears to be a bullish flag pattern formed in the 10-year that would suggest another leg higher is coming, which could send the 10-year to around 1.7%.
NASDAQ
Meanwhile, we need to wonder if the exact opposite pattern has formed in the QQQ ETF, a bear flag, after struggling all day at the $319.50 level.
NVIDIA
NVIDIA (NASDAQ:NVDA) rose yesterday, making it all the way back to resistance at the $520 level. It couldn’t make it all the way through. So this might be a level that we see NVIDIA reverse lower and head back to $465.
