Bye, Bye, Bonds

July 22, 2018

Weekly Market Outlook

By Keith Schneider

The action in US equities was mostly sloppy and mixed his week as the key indexes look to be trying to digest recent gains despite a steady diet of wacky news emanating from the White House or the Kremlin. The Russell 2000 picked up +.6% while NASDQ 100 slipped -.35%.

The news feeds all  focused on the shifting global order but the real show is liquidity. It appears that US  bonds just  showed it’s hand by failing hard on Friday after multiple attempts to regain its footing above key daily and weekly moving averages. Meanwhile, the yield curve continues to flatten.

Trump took on the Fed this week attacking his appointed chairman Jerome Powell  for raising rates and his intention to continue to do so. Considering the economy is already hot and the tax breaks are bringing things to a boil, rising rates and an inversion seem inevitable. An  Inverted yield curve is the best lead indicator for recessions, although timing the actual stock market decline is tricky.

The highlights of this week’s market action are the following:

• Bonds failed at tests of declining 200 DMA , 50 WMA and key trendlines ( chart above)
• The Yield curve continues to flatten
• Emerging Markets are finding support based on a intermarket ratio ( EEM/EFA)
• The Euro might have bottomed
• Volume patterns for US Equities remains mixed with no institutional leadership
• FANG stocks were mixed as NFLX reported poorly versus super hyped expectations
• Bio-tech assuming sector leadership from Semis

One again, the overall trend of US equities is strong,  but the underpinnings are fragile and watching the tape us critical.