Markets are jittery

Abraham George Macro View

Stocks were down on Friday and yields were up. Normally, that is not a good combination. When people are scared of stocks they run into the safety of bonds. When there are systemic risk issues in the market we can see sell off in all major asset classes. Given the events of past few days - is there a concern of market stability? I think there is.

Markets are very interconnected. When an improbable event happens in the market like a stock rises from $40 to $480 it touches or squeezes many risk parameters of banks and brokers. If counterparties start fearing and not trusting one another or doubting the creditworthiness of each other destabilization across markets can take place.

Will the Fed and other authorities let the markets down? I don’t think so. The markets are swimming in a sea of liquidity. The Fed and the Treasury will fight hand over fist to maintain stability and confidence in the markets.

Equities

The Dow made a high on Jan 20th at 31,188 . Four days later the S&P 500 pushed to a high of 3871 on Jan 26. The timing sequence is very similar to what happened in Feb 2020. The Dow made a high on Feb 12 and the S&P 500 topped four days later on Feb 19. The following down moves led to a 38 % decline in the Dow in 27 days and a 35 % decline in S&P in 23 days.

Whether we will see a similar fall in the markets is open to interpretations but the price structure so far is indicative of further falls in the coming week.

Most likely Monday should open with a gap down. If there is a counter trend push up it should top out between 3760 to 3790. The move down could be very strong and swift leading prices to 3600.

Bonds

As we discussed in the previous reports any move up in the 170 handle provided a selling opportunity. A move upto 170^29 was followed by a sharp decline to 168^13. Now a move to 169^10 or 170 should provide selling opportunity.

Euro

Euro price pattern gives many options. Prices can top out at 1.22 , 1.2230 or at 1.2280. A stronger decline from those levels should break below 1.2058 inviting a much bigger fall.

Gold

Gold prices carried to 1876 but is lagging much below silver. If this corrective move is complete, we should see gold trade lower for most of next week.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.