Stocks and Bonds Do Dangerous Dance – Ep. 327

Stocks and Bonds Do Dangerous Dance – Ep. 327

Volatility
The volatility is really continuing, in fact, today at one point this morning the Dow was up close to 400 points; ended up closing negative. It wasn't a big drop; about 20 points, but I think that's the biggest reversal of a gain to a loss in a little over 2 years. The broader market did worse. The S&P percentage-wise dropped about 13.5 points; the NASDAQ was down about 64 points.
Turnaround Tuesday
Of course the biggest reversal is the one we had yesterday. In fact, when I recorded my podcast on Monday I thought we'd have a big drop on Tuesday, but then I though we could also have a rally - Turnaround Tuesday. I thought we'd have a big drop in the morning and some kind of rally. That's exactly what we did, except we had an even bigger drop in the evening.
Dow Futures Loss
On Monday night, looking at how U.S. stock futures were trading in Asia, the Dow futures were down the equivalent of 1300 points. Now by the time New York markets opened, we had recouped almost all those losses. But if you look at the 5 trading days, from the high, the Dow Futures lost about 13% of their value. That just shows you how quickly the market can go down. The next time it could lose even more. That was a big move. Then we finished the day with a 500-point rally. So, lots of volatility.
Trend is Changing
I will tell you something: When you have a trend, and then all of a sudden you see lots of volatility, generally, that's a sign the trend is changing. The trend has been up, obviously stocks have been trending up for years. And they've been trending up with minimal volatility. All of a sudden you see massive volatility. Does that mean the trend is likely to continue? No. It's more likely a sign the trend has come to an end. Now you're getting all this volatility as people are jockeying around for position. People are buying the dips, now they're selling the rips.
Tail Wagging the Dog
I think the close today is a very weak close. We could start selling off tonight. I think the markets closed in a very weak way and there could be a lot more downside, especially if you look at what's happening in the bond market. That is the tail that is wagging the stock market dog. Yields on bonds are now back to the highs. In fact, the yield on the 30-year is now the highest it has been all year. Higher than it was before this little crash. The yield is 3.117 on the close.

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