The Stock Market Made A Big Mistake, At Least That Is What Bonds Think

The Stock Market Made A Big Mistake, At Least That Is What Bonds Think

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

Otherwise, enjoy the column!

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That was a fun day wasn’t it? Just whipping around 3 to 4% from the highs as if was nothing. But even more interesting events occurred today outside of the equity market. That is because the bond market may have had a different take on things, well that is what the flattening yield curve would suggest.

The Bond Market Got It

The 10-year yield fell to 2.76% today and may well be on its way to 2.6% now. Yes, that is right.  The 10-year yield fell below vital technical support at 2.8%.


The yield on the 30-year bond fell below 3%.  Meanwhile, 2-year yields were flat staying at 2.65%.  Call me crazy, but the technical setup on the chart for the 2-year yield doesn’t seem to be bullish either.  Even the 5-year notes fell to 2.63% today, yes the 5 and the 2-year bonds are still inverted.

2 year

The dollar hardly moved today too, rising just 12 basis point.  I guess the point I’m trying to make here is that perhaps the message the Fed sent today, including all the talk about the balance sheet wasn’t as terrible as the stock market thinks. After all, I would have thought yields would have risen, or the dollar might have strengthened. At least based on the equity market reaction. Even the flight to safety into gold didn’t happen; it finished the day 50 bps lower.

What Does It Mean?

The reaction at least in the interest rate sensitive part of the market would suggest that Powell stance on monetary policy was nothing shocking. It would show to me the equity market sell-off was overdone and may prove to be the wrong knee-jerk reaction, as it usually does.

Are the shifts in yield due to a flight to safety? Could be, but why didn’t gold rise then? Does the VIX even work anymore? Are there just a wall of traders shorting vol at 26? Just look the VIX, it can’t get over 26.


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Is the VIX trying to tell us there is no fear in the market? Look at the put to call ratio, it rose today to 1.28. That would suggest there is fear.

put to call

But the lack of movement in Gold might suggest that move the falling bond yields weren’t just a flight to safety. No. It was the bond market interpretation of a Fed that is reducing its expectation for rate hikes in the future. Which is exactly what they did today.

The problem is that Algo’s, they can probably pick up on the keywords in the text, but who knows if they can actually understand it?

Russell 2000

The Russell once again failed at resistance today at 1394 and managed to find its way down to 1344, just like we had looked for.

russell 2000

S&P 500

To say that the S&P 500 has reached its moment of truth may be an understand. The S&P 500 is now sitting on a trend line that dates back to the 2009 lows, and I fear what might happen should that be violated.

spx, sp500


I’m dropping the “F” and calling it ANG from now. Facebook doesn’t deserve to be in this group anymore. Anyway, I may sounds like a broken record but Amazon, Netflix and Alphabet continue to hold their lows. For a good part of today, they were all actually showing some positive signs. I’m not sure why these three stocks have held up so well, but they have. Maybe it is because they are down between 20 and 35% already.  I’m not certain how much longer they can continue to hold support either, but each continues to hold the respective lows of November 20.

Facebook (FB)

Facebook broke support at $140 today, after it was revealed that the Washington DC AG would sue the company. That just killed the rally in that stock, and I continue to think this is most toxic stock in the market.   A break below $133 sends this lower, to around $115.

facebook, fb

Citigroup (C)

Citigroup continues to get pummeled and is now at $52.80 and be on its way to $49.



The Biotech XBI is now 30% off its highs, with the potential for a decline to $68.


Life Goes On

The losses have been brutal but let us remember we are just reaching the equivalent losses of what we saw in February 2016 from their peaks.

^IXIC Chart

^IXIC data by YCharts

Not that it should make you feel any better, but let it serve as a reminder we have been through tough times before and survived and my hunch is that we all survive again. We may have a little bit less money, but life will go on.

Lets hope that tomorrow the market comes to its sense and hopefully the bond market can be the equities market guide. As I have said many time before, the equity market isn’t the sharpest tool in the shed when it to interest rate policy.


Photo Credit Via Flickr

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

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