Stocks were crunched again today by soaring yields as bears took control. The Dow, S&P, and Nasdaq Composite all tumbled, pulled lower by a Treasury selloff. The 10-year Treasury yield advanced to 3.70%, up from 3.00% just one month ago.
The 2-year yield jumped, too, rising to a daily high of 4.15%. There was little for bulls to be happy about following yesterday’s rate hike.
“The Fed’s paved the way for much of the world to continue with aggressive rate hikes, and that’s going to lead to a global recession, and how severe it is will be determined on how long it takes inflation to come down,” said Oanda senior analyst Ed Moya.
Rate-sensitive tech stocks underperformed today, but industrials were hit hard, too. The SPDRs Industrial ETF (NYSE: XLI) dropped 1.51% vs. the SPY, which fell only 0.86% by comparison.
“Stocks’ reaction to the FOMC reflects that a rising probability of recession requires further discounting,” said Evercore’s Julian Emanuel.
“Chair Powell, to the market’s obvious dismay, outdid Jackson Hole’s abject, ‘drop the mic’ hawkishness on Wednesday. Hard to believe, but he did.”
And though the S&P didn’t plummet like it did yesterday, the index did cross an inauspicious threshold:
As of today’s close, the S&P has traded below its 200-day moving average for over 100 sessions.
The last time that happened was in 2008-2009 during the GFC. Before that? You guessed it, 2000-2003 after the tech bubble popped.
But history doesn’t suggest the selling will end any time soon. After trading below the 200-SMA for 100 sessions during the tech bubble days, the S&P fell another 50% before bottoming out. 2008-2009 saw the index fall another 40% as well.
If the S&P splits the difference and falls another 45%, the index will finally form a trough around 2,050, or below the Covid lows.
That seems like an unrealistic drop from where the S&P is currently trading. However, in 08/09, most investors didn’t see the index falling another 40%, either.
But before we get ahead of ourselves, there are shorter-term bear opportunities still available despite the market’s big drop fo the last two days. Norwegian Cruise Line Holdings (NYSE: NCLH) actually gave us a setup yesterday that technically triggered today.
Because NCLH closed above its trigger, though, there’s time for bears to take a bearish position on the stock before it truly runs lower. NCLH broke its minor bullish trend (yellow trendline) yesterday along with the 10-day moving average.
The stochastic indicator suggests the stock has room to fall as well.
For those reasons, it may make sense to take NCLH short with a trade trigger of $14.29 as the general market struggles to stop the bleeding.
