Tuesday 21 April 2020

Is the next leg down starting now?

If the US 10 does go negative, given the Primary Dealers have to buy, even though the Fed has rates at zero, they will be negative carry and swamped with sales/ reverse repo/ Treasury new issuance.

Two key charts: US 10yr breaking out and equities just scuffed the bottom of the retracement target box I drew up based on prior bear market rallies:

In terms of the next leg down being on us now, we had the initial liquidity crack in March leading to a 1 month sell off. We then had a 1 month relief rally driven by technicals. Historically the next leg down should start pretty much now and take out the March lows and take place over a similar 1 month time horizon.

So looking at late last week this week so far:

  • Equities starting to roll over
  • USD index starting to break out
  • Yen and Euro showing signs of capital repatriation
  • US 10yr breaking out
  • Oil imploding into delivery
  • Gold fading the rally
  • High yield looking like its starting to fade the rally

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