Technical Resistance Halts Turnaround Tuesday; Bitcoin & Bond Yields Surge
Yen's Stability and Lack of Recession News Fuel Stock Rally
The yen managed to avoid further collapse overnight, which led to speculation about a possible intervention by the Bank of Japan. Along with the absence of fresh macroeconomic news to fuel recession fears, this set the stage for a Turnaround Tuesday rally in stocks. The entire US equity complex moved in unison, with each dip in the indices being met with a sudden influx of bids. However, the rally began to falter once the S&P reached its 100-day moving average (DMA), leading to a sell-off that wiped out a significant portion of the day's gains.
Turnaround Tuesday: A Common Phenomenon
The term 'Turnaround Tuesday' is a well-worn cliché in financial circles. It refers to the tendency of markets to rebound after a selloff at the start of the week. However, such recoveries are not a guaranteed sign that a bottom has been reached. According to Brent Donnelly, a veteran trader and president of trading analysis firm Spectra Markets, the pattern usually begins with market jitters on Thursday, hedging on Friday, and full-blown selling on Monday. By Tuesday, the market is typically ripe for a reversal.
Uncertainty Remains Despite Rally
Despite the Tuesday rally, market experts remain cautious. Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, warned that volatility is likely to persist into October and November. He advised investors to trim risk into any counter-trend rally that lasts for a few weeks.
Shorted Stocks and Rate-Cut Expectations
'Shorted' stocks managed to reach a technical resistance level before stalling. Meanwhile, rate-cut expectations have mostly retraced the surge seen on Friday, with 2024 expectations shifting back into 2025. Prior to the payroll data, the market was pricing in 200 basis points of cuts until the end of 2025. This figure rose to over 230 basis points at its peak yesterday, before sliding back to around 210 basis points today.
Treasury Yields, Dollar, Gold, and Oil
The decrease in rate-cut expectations led to a rise in Treasury yields, with the long-end underperforming. The dollar also rallied, erasing the previous day's losses. Gold, on the other hand, slipped below $2400. Oil prices remained relatively stable, with WTI hovering around $73.
Bitcoin and The Fed's Reverse Repo Facility
Bitcoin continued its upward trajectory from $50k yesterday, reaching $57,000 today. Meanwhile, the usage of The Fed's Reverse Repo facility dropped below the $300BN mark for the first time since May 2021, leading to questions about potential liquidity fears.
Bottom Line
While the Turnaround Tuesday phenomenon provided a brief respite from the recent market downturn, it's clear that uncertainty still looms large. With experts predicting continued volatility and potential liquidity fears on the horizon, it's crucial for investors to stay informed and prepared. What are your thoughts on these developments? Do you think the market will continue to see volatility in the coming months? Share this article with your friends and let's get the conversation started. Remember, you can sign up for the Daily Briefing, delivered to your inbox every day at 6pm.
