Risk Proxies Hold Firm As Pessimists Rejoice - Morning Market Squeeze

Key Tactical Takeaways:

> Key risk proxies like QQQ, SPY, IWM and HYG reversed Thursday's early weakness to close > their respective bullish short-term trailing stops. While the most aggressive wave (wave 3) of the post-09/24 rally is over, Thursday's action suggests the near-term door remains open for more ... 

> After Thursday's dramatic outside reversal from critical levels, the near-term case for ongoing inflationary rotation in the benchmark 10-Yr yield stays alive against...

> EFA (developed markets ex. N. America) have shown major deterioration in recent days, confirming the fact that these markets maintain large bear market structures since the pre-Covid highs.

> 2 popular bottoming patterns seem to be forming for ...

Some Quick Thoughts:

Pessimists rejoice: you were correct to dismiss the summer narrative that the 4th quarter would mark a fresh start for the global economy supported by successful vaccine trials, continued stimulus, and a limited second Covid wave. While the risk-off trend of the past 3 days is a reflection of the market's acceptance that things are actually moving backward on these issues, the strong upside reversals seen across several risk proxies like high yield, small-to-largecap stocks, and Treasury yields on Thursday is a reminder that changing the direction of the market's prevailing trends can often be akin to steering a battleship.    

Let's face it, Europe is in trouble. With a decimated tourism industry, a technology sector that is a chronic underperformer, and a negative yield environment that is suffocating bank's earnings, the recent realization that this new nightmare we're living in is far from over is best reflected in the bear market patterns of the major European equity indices. 

With US equities propped up just below all-time highs, the hope, of course, is that US growth can resume its uptrend once freed of pandemic shackles and Washington gridlock.  With the potential for a disputed election and tactical dollar stability due to Covid-induced Euro-area troubles still on the table, however, the timing of the next growth wave remains unclear. So, what do we do when tactical shifts such as this week's risk-off tone enter the picture? We listen to price. Right now, price is telling us that...

This is an abridged version of our premium content. If you'd like to have content like this sent to your inbox each morning, please click here to sign up for a risk-free, 2-week trial (no credit card required).

Please follow us on Twitter @xtractanalytics

Home   |  About  |   Products & Services   |   Free Trial   |   Subscribers   |   Contact Us

Michael Sacchitello, CMT   |   646-295-4542   | 

Privacy Policy   |   Terms of Service

  • Twitter

© 2020 Extract Analytics LLC. All rights reserved.