Monday’s Trade Relief Rally Saw Profit Taking Tuesday

Monday’s Trade Relief Rally Saw Profit Taking Tuesday

Monday’s Trade Relief Rally Saw Profit Taking Tuesday

$DIA, $SPY, $QQQ, $RUTX, $VXX

The S&P 500 fell 3.2% Tuesday on some concern on future economic growth, which was signaled by the drop in US Treasury yields.

A technical test and breach of the S&P 500’s 200-Day MA at 2762.32 contributed to the selling.

Monday’s trade-relief rally was under pressure from the onset as market participants reoriented their mindset to concerns that the US and China will not be able to settle differences over major trading issues in the next 90 days.

President Trump Tweeted a reminder to China that he is a “Tariff Man,” implying that he would revert to further tariff action if a deal does not get done timely.

Beyond that factor, today’s sell-off was really sparked by economic growth concerns, which manifested themselves in a decisive curve-flattening trade in the US Treasury market that featured an inversion of the 2-yr T-Note yield (2.80%) and 3-yr T-Note yield (2.80%) over the 5-yr T-Note yield (2.79%).  The 10-2 spread narrowed to 12 bpts, which is the narrowest spread since Y 2007.

The benchmark 10-yr T-Note yield dropped 7 bpts to 2.92% while the 30-yr T-Bond yield dropped 10 bpts to 3.17%.  Those moves were heightened by a “pain trade,” as short sellers expecting higher rates were compelled to cover their Bearish bets.

Notably, the fall in interest rates was not a catalyst for increased buying interest in the stock market Tuesday. The reason being is that the drop in rates seemed to be grounded in concerns over future economic growth, which in turn drove concerns about future earnings growth.

Concerns over future economic growth were reflected in the poor performances from the cyclical sectors, as well as the domestically-oriented Russell 2000 (-4.4%).

The financials (-4.4%), industrials (-4.4%), consumer discretionary (-3.9%), and information technology sectors (-3.9%) underperformed the broader market.

The rate-sensitive financial sector was undermined by the flattening yield curve, which raised concerns about a compression in net interest margins.

The stock market will be closed Wednesday to honor the late George HW Bush, the 41st President of the United States.

Tuesday, the US major stock market indexes finished at: DJIA -799.36 at 25025.97, NAS Comp -283.09 at 7158.63, S&P 500 -90.31 at 2700.33

Volume: Trade on the NYSE came in at 1.1-B/shares exchanged

  • NAS Comp +3.7% YTD
  • DJIA+1.3% YTD
  • S&P 500 +1.0% YTD
  • Russell 2000 -3.6% YTD

HeffX-LTN’s US Major Stock Market Indexes Technical Analysis

Date Symbol Price Technical Analysis Support Resistance
4 December 2018 QQQ 166.24 Bearish (-0.34) 162.80 167.24
4 December 2018 DIA 251.81 Bearish (-0.26) 251.40 255.02
4 December 2018 SPY 270.89 Bearish (-0.35) 269.52 272.21

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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