What Happened: After auctioning to new all-time highs, U.S. index futures moved back into balance.
Remember This: â€œWith Global Liquidity jumping by some US $20 trillion in 2020, or some 25% of World GDP, there is a lot to spend… Consider that following the 1930s Depression, it took roughly a decade to retain previous economic heights. After the 2008/9 GFC, the World economy clambered back after around two years. But it seems from latest data that it has taken barely six months to recover from the COVID Crisis,â€ said Michael Howell of Crossborder Capital said in reference to money being used to buoy the real economy.
â€œ[T]he stark warning from history is that â€˜… strong economies do not have strong financial markets.â€™ In other words, if money is being spent in the (virtual) high street, it is not being invested in stocks. Our bullishness about economies forces us to become bearish about stocks.â€
Pictured: Profile overlays on a 65-minute candlestick chart of the Micro E-mini S&P 500 Futures
After participants established an all-time rally high in Wednesdayâ€™s session, the S&P 500 liquidated in regular trading, down to the micro-composite high-volume node near $3,667.75, a valuable price level. Thereafter, participants accepted lower prices.
In light of the mechanical trade (i.e., minimal excess at Fridayâ€™s lows) and poor structure (e.g., low-volume areas), it’s very likely that the selling was the result of weak-handed, short-term buyers liquidating positions in panic.
Given that the higher-timeframe breakout remains intact, participants must monitor whether buyers surface at the $3,654.75 low-volume node and extend the range up to the high-volume node at $3,667.75. At that point, an initiative drive through that high-volume node — the most positive outcome — would portend a move to the $3,690.75 high-volume node, and then the prior all-time rally high.
Spending any considerable amount of time below Fridayâ€™s range puts the entire rally on hold.
In a Bloomberg commentary, Larry Dwyer of HSBC Holdings PLC HSBC, +1.62% was cited in a statement on his bankâ€™s mildly bullish take on Treasuries, which puts the 10-year yield at 0.75% at the end of next year.
Simply put, the notion that the Federal Reserveâ€™s average inflation-targeting strategy will keep rates lower, for longer than expected, remains intact, drawing talk of inflationary expectations in the system. Still, the note comes ahead of the Fedâ€™s upcoming meeting this week. Itâ€™s most likely that the marketâ€™s reaction to the event will be muted, absent a material change in policy (e.g., guidance on easing).
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