Opening Bell: Stocks Extend Selloff As Investors Hide In Safety
Pinchas Cohen | Jul 12, 2022 20:24
- Stricter COVID restrictions in China have investors nervous
- Treasuries are rising with the dollar, deepening yield inversion in bearish signs
- Euro touches parity
- Earnings due from JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC)
- BOE Governor Andrew Bailey discusses the economic landscape, Tuesday
- Amazon.com (NASDAQ:AMZN) kicks off its Prime Day event, Tuesday
Stocks extended yesterday's selloff, fearing inflation and interest rates will keep pushing markets lower. The dollar climbed together with Treasuries as investors sought hideouts in havens, positioning themselves for another hot inflation reading and the start of a critical earnings season that may confirm or alleviate concerns of a coming recession.
US futures were red, keeping the same pattern since Friday, in which the Nasdaq 100 and the Russell 2000 underperform. These two indexes have been leading stock market moves, up and down, as they are in the hot core center of the most critical theme: interest rates. In a word, investors are shifting from greed to fear.
The STOXX Europe 600 extended a decline to its second day after a pocket of supply outweighed demand.
The European benchmark has been ranging between the resistance set by late-June highs and the support of the March lows. Given that the trend is falling, I expect the 400 levels to give way too. Like US futures, technology led the selloff, followed by healthcare and luxury.
Oil-related stocks managed to gain slightly on a correction within the continent's energy shortage. Miners lost another 1.2%, extending losses as Chinese cities increased restrictions, sparking concerns that the world's top metal consumer and the second-largest economy will take a significant hit, impacting the global economy.
Treasuries extended gains, pushing the yields down for the second day, pushing toward a top.
If 10-year yields fall below 2.7, it will have completed an H&S top.
Get The App
However, worse than the implication of investors buying more bonds is that they're buying more bonds even though their payout is falling. Moreover, the rates are falling, in contrast to expectations for further rate hikes, rendering current yields even more unattractive. The fact that investors are willing to buy bonds at this point suggests they are much more afraid of keeping their money elsewhere, which is a bearish sign. So is the following chart.
The 10-year fell harder than the 2-year yield, meaning that people bought more ten-year yield bonds than the two-year yield bond. This behavior is widening the inverted yield spread—a situation in which the shorter-dated bond pays out more than the longer-dated bond, which is economically illogical and is a leading indicator of a recession.
Investors rushed to safety, pushing the U.S. dollar to its highest level since Oct 18, 2002.
I expect the dollar to extend its rally to at least 110, based on the height of the H&S Continuation pattern. Here is our last post on the dollar. The dollar's rise pushed the Euro to its lowest since Dec 4, 2002, and parity.
Although the H&S Continuation pattern targets 0.99, I expect that parity's headlines will support it with all the interest and psychological implications.
Gold is now up after having swung between gains and losses. It's impressive that gold is up despite a stronger dollar and rising yields, underscoring how scared investors are. Technically, gold is unclear right now.
I would feel more comfortable guessing a direction after reaching its Falling Channel's extremes.
Bitcoin fell for the fifth-straight day as it tests potentially cataclysmic support.
The cryptocurrency fell to the bottom of a potential Rising Flag. If the price closes below $1,900, I expect another leg down on the scale of the previous legs, respectively $13K and $14K. These moves will jive along with my long-term bearish call, which I have been repeating since at least January.
Oil fell for the second day, confirming the preceding Rising Flag within the Falling Channel, increasing the odds of completing a much larger bearish triangle (as explained here).
h2 Up Ahead/h2Disclaimer: The author currently does not own any of the securities mentioned in this article.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.