Two Massive Back to Back Equity Reversals. Positive....What That is Signifying
We are having the second upward back to back up-move in two days... Today the Dow has reversed 1000 points, the S+P 125, and the Nasdaq about 400, with markets giving some of that back in the last few minutes... This is in contrast to what the markets did last week, giving back two back to back massive gains and closing deep in negative territory... This indicates to us, first the obvious, that buyers are coming in bottom fishing or with levels of which they want to buy... But even more so we think it indicates that if the Fed is neutral or dovish to the expected Street expectation tomorrow, we think a risk rally could be significant... We will wait and see...
Treasuries... One would have thought that treasuries yields would be lower based on the risk off activity in the morning, but the moves have been disappointing... 10 years hit 1.79 last night, 1.7263 this morning, and going out at 1.78 now...Kudos to our friends at Dinosaur, who put out a trade idea on 10 year futures using RSI, that targets 126-17 over the next few weeks, when they were trading 128-17 earlier today... That level would clearly kick in all the puts written at the 128 and 127 strike prices that expire 2/18... Interesting idea...
Volatility is not going away and look for it to increase into and out of the Fed meeting tomorrow... But we will look for the pivot move, if there is one, about 18 hours after the presser... One of our friends at BB put an old Greenspan quote into our chat, not sure how long ago, we doubt it was recent... But current...
Greenspan: "I'm saying to myself, 'You can't do point when you've done nothing and it comes out of the blue. The markets will go berserk.' I don't know how I made that point, but I finally got enough votes so they agreed to go with me. Markets almost went berserk, in any event"
This describes the rock and hard place that Powell has backed the Fed into... We think he will lean to faster inflation rather than derailing the economy... Talk to you tomorrow