If it weren't for the President's tweet...Late Tuesday afternoon the stock market rally and Treasury market selloff was stopped short of its natural progression by a single tweet, says Carley Garner of DeCarleyTrading.com.
President Trump announced the Republicans would stop negotiating the Covid-stimulus bill and start focusing on filling the Supreme Court seat. Of course, those speculators positioned for a stimulus package (long risk-on assets and short Treasuries) were caught flat-footed by the sudden news.
Coincidentally, or maybe not, the S&P 500 selling came in at roughly the resistance area we had been noting. With that said, we suspect the market would have moved similarly without the tweet from the President, but it probably would have been a more orderly round trip.
Both stocks and bonds are beating on the door of technical analysis (resistance and support, respectively). Will they breakthrough? We think so.
Tuesday's volatility was unexpected and unwelcome for most (unless you happened to be nicely short in time for the tweet). However, from a technical analysis perspective, the market behaved in a completely reasonable manner (at least regarding price, not pace).
While the selling overshot the support, we had picked out near 3,344, most of the selling below that level was temporary. This suggests buyers on dips were not only active, but aggressive. We can't say we blame the bulls; on the other end of the tweets and headlines is the reality that despite the dysfunction in DC, a stimulus bill of some form will likely be passed before the end of the year regardless of who is elected next month.
Don't forget...weak Septembers are generally followed by positive Octobers.
Speculators are far too complacent in bonds and notes.
Traders sometimes have short-term memories. It is almost as if bond and note traders have forgotten the chaos of March 2020 in which Treasuries soared unfathomably higher. Months of tight trading ranges and low volatility leave the market vulnerable to some panicked trades...in our opinion, that is most likely to come in the form of a long squeeze.
Even without a change in fundamentals, Treasuries are due for a reality check. We are looking for the 30-year bond to break support and find its way a little below 172'0 and perhaps lower if a stimulus deal is passed. The 10-year note could see 138'0 or slightly below on the first pass.
To learn more about Carley Garner, visit DeCarleyTrading.com.