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10s Eye Critical Test, S&P Flash Crash Holds Support - Morning Market Squeeze

Key Tactical Takeaways:

> So far, the US$ (DXY) is holding critical support at 89.73, but is still unable to reach fresh bullish escape velocity with a close > 90.60.


> The scope of Monday's S&P 500 range was so rare that it has happened only once since 1962, and resulted in a lower close the next day by -0.23%. happened only once, and was followed by a decline of -0.23%.

> The VIX did spike intra-day on Monday, but settled below its 1st stop at 23.8. As long as this stop holds on a closing basis, volatility will not be allowed to get out of control.


> Technically, Monday's rally below 1.08% on the 10-Yr yield sets the stage for a critical test of the 1.0% area in the days ahead. This will stay the case pending a close > 1.08%


> UNG's bounce from the low-end of its volatility range on Monday reestablishes bullish short-term footing, offering us the opportunity to get long again based on our volatility-based rules. We'll do so at today's open with anticipation for a long-term hold.


Some Quick Thoughts:

Ahead of Tuesday's 5-Year supply, Monday's breakdown of what was setting up as a bearish continuation pattern in long-end rates appears to reflect concerns that stimulus negotiations look set for a long battle in the Senate, as impeachment timing adds another layer of uncertainty. Technically, Monday's rally below 1.08% on the 10-Yr yield sets the stage for a critical test of the 1.0% area in the days ahead. This will stay the case pending a close > 1.08%.


Despite recent concerns that the benchmark S&P 500 has rallied too far in relation to breadth, the fact that Monday's small flash crash reversed higher off of critical support leaves the focus on the high-end of the range near 3891 heading into the FOMC.


The Shanghai Comp. and Nikkei both closed lower overnight (-1.51% and -0.96%, respectively), while HANG SENG gained 0.37% and the DAX is up by 1.91%. We need to keep an eye on the DAX for signs of fatigue, however, as it was the only on to close below its bullish near-term stop on Monday. This comes after German Chancellor Angela Merkel told party colleagues that the country's management of the pandemic has "slipped out of control" and that stricter curbs are needed.


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