Determining whether we are in a risk-on or risk-off climate is challenging, especially after a fantastic day of gains in every major US index.
We should be in a risk-on environment. The Chinese stock market even rose, with technology and electric vehicles leading, as investors hoped for a more liberal COVID-19 governmental policy. With a gain of 4.4%, the Nasdaq composite, which had been the slacker, led gains among major US indices.
The S&P 500 (represented above by the SPY ETF) also surpassed its 200-day moving average for the first time in seven months. Markets are also approaching critical technical levels, which can accentuate positive or negative data, so keep an eye out tomorrow for PCE, the Fed’s favorite inflation gauge.
Regardless of today’s market action, there are indications that a global recession is imminent, with part of Europe potentially already in a recession and the US possibly next year. In particular, a rare 20-year recession signal is flashing red.
Global bonds joined US peers in signaling a recession, with a gauge measuring the global yield curve inverting for the first time in at least two decades.
According to Bloomberg Global Aggregate bond sub-indices, the average yield on government debt expiring in 10 years or more has slipped below that on short-term bond yields. On the heels of Fed Chairman Powell’s dovish remarks today, the stock market rallied with heavy volume. Yet global bond yields signal a recession ahead.
Market conditions are ripe with profitable trading opportunities. Investors should pay close attention to commodities, currencies, bond yields, and inflation. If the PCE print is higher than expected, one-third or even more of today’s gains could be erased quickly. On the flip side, if PCE is lower than expected, stocks might continue to run higher.
It is crucial to proceed with caution, as there is the potential for significant volatility in the coming weeks and months. We believe this ferocious bear market rally still has some legs – but don’t wait too long to make your move, or your portfolio might get clawed quickly. If you are looking to capitalize on this ferocious bear market rally, our team can help your trading to protect your portfolio while allowing you to benefit from bullish trends.
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Mish in the Media
Read Mish’s latest article for CMC Markets, titled “Can the Commodity Super-Cycle Persist into 2023?“.
Mish talks stagflation in her interview by Dale Pinkert during the F.A.C.E. webinar.
Watch Mish’s appearance on Business First AM here.
Mish hosted the Monday, November 28 edition of StockCharts TV’s Your Daily Five, where she covered some of the Modern Family. She also discusses the long bonds and gold with levels to clear or, fail.
S&P 500 (SPY): 402 is support and resistance at 411.Russell 2000 (IWM): 183 support; 191 resistance.Dow (DIA): 342 support; 349 support.Nasdaq (QQQ): 288 support; 302 resistance.KRE (Regional Banks): 62 support; 66 resistance.SMH (Semiconductors): 223 support; 232 resistance.IYT (Transportation): 230 support; 237 resistance.IBB (Biotechnology): 133 support; 139 resistance.XRT (Retail): 64 support; 70 resistance.
Director of Trading Research and Education