There have been quite a few interesting developments over this past week, so we have a lot to cover. I want to begin by drawing your attention to the divergence between stock prices and bond yields. We discussed this back on March 5th, but since then, things have deteriorated even further.
The first thing I want to mention today is that the S&P has finally cleared its overhead resistance at 2815. As you can see below, that price level turned the index back on five separate occasions. The fact that prices are holding above this mark is a good sign, as it suggests the selling pressure at this level has subsided.
Over the weekend, our long-in-the-tooth bull market supposedly turned 10 years old. The reason I say supposedly, is because at least according to Dow Theory, we’re technically in a bear market. In addition, should the S&P 500 fail to reach new highs and instead fall below its December 24th low, the bull run could conceivably have ended back on September 20th.
We’ve been hyper-focused on the equity market over the past few months so I thought we’d expand our horizons today and look at a few other markets, particularly the bond market. This discussion should dovetail nicely with recent central bank comments suggesting an alteration of their inflation policy framework – something that could have large consequences down road.
When the market collapses as it did during December, it’s usually a function of ETF and futures driven selling. Rather than going through the process of selling individual stocks, larger investors use these baskets of securities to effectively sell everything at once. This is especially true when we’re talking about short-term, algorithmic style trading.