Sunday, August 7, 2011
Here is the weekly chart recap from my notes. We bookend the week looking at the parallels in market conditions in 1998 and what it meant towards the prospect of a lower low. In between expectations were colored with the move in 10 year yields (TNX) and the price structure of the 1987 market crash.
“Continuing that train of thought, I’m still firmly in the camp that a lower low is upon us – it’s just appraising where the market will likely pivot and if the benevolent and unyielding shoulder of the bull will once again emerge in tact.
While I don’t think the US is headed for a recession on its own accord (although the politicians are certainly doing their best to point us that way), I can’t rule out that the sovereign debt crisis in Europe won’t spill over in the near term and metastasize with contagion tentacles to drag us to the edge of one ourselves. One analog that I have been carrying around in my files because of the similarities in price structure, market sentiment and macro condition, is 1998.” 1998 Redux
“So with that said, take the large downdraft in treasury yields today with a grain of salt, because they are working off of a trend bottom that was so extreme. I don’t think it was a coincidence that the equity markets capitulated in early August of 2004 just as yields broke their level of support from the 2003 bottom. The exact same occurrence (yields breaking support while stocks make new lows) is transpiring today as I write this. The equity markets in 2004 was digesting the uncertainty as the Fed began removing the historic monetary accommodations. The fear materialized with a skittish stock market and very strong demand for US treasuries.” Waiting On A Low
“Back by popular demand I thought I would quickly scare myself into getting too bullish on a cascading tape.
With that said, these series of charts represent extreme outliers on the equity market continuum. Trading towards these kinds of outcomes fails 99% of the time. We all have the tendency to see what we want to believe or fear the most.
“Monday evenings note (see Here) concerning the similarities in market conditions with 1998 is replicating along very similar lines – both in seasonality, price and volatility. After yesterdays extreme move lower – the downside target is coming into equal proportions to 1998. Following this analog – risk appears tilted towards further weakness in the equity markets in the near term.” 1998 Redux – Update
at 9:50 AM