Yield Curves, Recessions, and 200 Day Moving Averages

Dow: -799.36…
Nasdaq: -283.09… S&P: -90.31…

The worm turns fast on Wall Street, doesn’t it?  Almost to the point of it being kind of unbelievable.  The Dow and SPX broke their 200-day-moving averages today like a hot knife through butter.

The Dow lost 3.1%, SPX lost 3.2%, the Nasdaq lost 3.8%, and the Russell 2000 lost 4.4%.

Here’s why today happened…….

1- General concerns about the ability of the U.S. and China being able to settle their major trade differences.

2- Worries that the flattening/inversion of the Treasury yield curve is a sign of slower growth, recession in the future; yields on 2-yr note, 3-yr note higher than yield on 5-yr note.

3-S&P 500 breaches technical 200-day moving average (2762.32)’

4- The heavily-weighted financial sector (XLF) pressured by the flattening/inversion action in the Treasury market.  It also important to note what the regional (domestic) banks did today (KRE).  Down 5.5%. The regional banks are a “tell” on what the investment community thinks about the “domestic” economy. (Recession?)

5- Apple (AAPL-$8, -4.4%)) traded lower after supplier Cirrus Logic (CRUS) lowered its guidance over recent weakness in the smartphone market.

So the market has gone from this late last week and yesterday…

to this ……

Stocks we loved yesterday we despise today.  All short-term hope that was generated yesterday morning is now gone, at least for right now.  Santa Clause is in the ICU and Donner & Blitzen need a gurney and paramedic.

Today was serious and it shouldn’t be taken lightly.

It’s not normal behavior to see the Nazzy and Russell push 4% on the downside.  3% plus downside moves on the Dow & S&P aren’t normal either.

So from perch, there are greater forces at work here.  China trade and the Fed were last weeks hurdles and we thought we had moved past those issues.  But one thing that the market really hates is the “R-word” and even the “hint” of a recession can screw up the apple cart and take away the punch bowl.

The market is forgiving, but it hates recessions.  Of course, we could dodge a bullet and not have a recession, we could rally hard once more rational minds prevail, however, the seed is now planted and you never know when it really will start to grow roots in the minds on the investment public.

My takeaway was that today was a ridiculous overreaction to something that isn’t even a reality right now. Economists never pick recessions right and Wall St. analysts are as useless as glass hammers.

The problem with a recession is that you usually don’t even know you’re in one until its too late.

Bottom line, we need to just watch the price action and maybe get smacked around like a rag doll a little more until all this just settles down.  So many moving parts right now.

I sold some longs today to reduce a little exposure and threw a couple of shorts on that I have been watching anyway.

I told you a week ago that some hedge funds were in trouble and may close as a result of liquidation and just overall crappy performance.

Today Balyasny Asset Management cut at least 125 people from his hedge fund, about one-fifth of the total, as losses and client withdrawals erased $4 billion in assets.

The firm eliminated 13 stock teams, accounting for about 40 investment professionals. It plans to reduce the balance of employees from the back office before the end of the year.

I know some folks there.  More to come at other shops.

In the meantime hang in there and keep your seats and tray tables in an upright position.  The circus resumes in about ten hours.

Right now futures are up about a half percent.

P.S. I’d be happy to give anyone a chart read on anything that may be concerning you so shoot me an email.  My stocks or your own.  I probably won’t get back to you until pre-open in the morning though.



Previous Post
The Beatings Will Stop as Soon As Your Morale Improves
Next Post
Still Hard To Trust

Recent Articles