Key Tactical Takeaways: > Although the US equity benchmark appears to be favoring the horse that got it to where it is today (see discussion below), it must be mentioned that there is a seasonal topping process that typically starts to develop from now to mid January. > While the 10-Yr yield's breakaway gap above 1% portends higher rates to come, there is a gargantuan wall between ...% and ...% that the 30-Yr (currently 1.82%) yield is now faced with.
> The late-2020 rebound back in favor of growth vs. value has now broken down, leaving this key ratio vulnerable to rolling over into the next leg of what appears to be...
> We're looking to add ... stocks to the trade ideas sheet on pullbacks. We'll also be shorting ...on any rebound and looking to add ... equity ETFs on a pullback.
Some Quick Thoughts: Look, we can either spend today lamenting about what was one of the most embarrassing periods in this country's history or we can focus on the task at hand, which is to navigate what is clearly a broken US equity benchmark. We'll leave the former to your favorite blog and focus on the latter. To us, by far the most important market development on Wednesday was the "breakaway gap" above 1.0% by the 10-Yr yield. While this action portends higher rates to come, we must remind you that the bond market is still technically in a secular bull market (higher prices, lower rates). We highlight this because countertrend rebounds in rates have rarely moved in straight lines over the past several decades, and because there is a gargantuan wall between ...% and ...% that the 30-Yr (currently 1.82%) yield is now faced with. We'll take a deeper dive into this in the coming days. For now, from an equity standpoint, financials are the place to be. Speaking of the "the place to be," back in December we said, " developed markets ex. N. America are the place to be." Since then, EFA leadership has exploded, but tactical profit taking is now warranted after Wednesday's upside overshoot. While the US$ is showing short-term rebound potential as EM carries overbought credentials, the trend will not undergo a countertrend shift favoring a EM correction until the dollar index (DXY) closes > ... and EEM breaches .... So, while the US equity benchmark appears to be favoring the horse that got it to where it is today (i.e., ignoring the leverage that Dems now have to push higher corporate taxes and greater regulation, and favoring the prospects for even greater stimulus and spending), it must be mentioned that there is a seasonal topping process that typically starts to develop from now to mid January. Seasonals don't always work, but they have worked pretty well of late. As long as SPX stays above ..., seasonals will do nothing to derail a possible bleed higher.
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