Markets were coming back from its AM slump and everything went GREEN...mid-day.....then 10 yr YIELD started to rear its UGLY HEAD UP to 5.27% from 5.20+.........well that called for the end of the trading world as we KNOW........
All indices tanked to a FRESH LOW of the day as follows:
Russell 2000... down 1.38%
S&P400........ down 1.1%
S&P500.........down 1.07%
Dow Jones.....down .97%
Nasdaq Comp down .87%
Down volume led by 8 to 1 on NYSE & 3 to 1 on Nasdaq.
In Economics 101 we are all taught that ...when demand is higher than supply then ...price go UP........same principle applies when economy is GROWING and private equity is HUNTING for cheap companies to take it private...the demand for MONEY is growing from TWO important sectors.................
Companies are expanding their production to meet the RAMP UP demand for upcoming Fall & Christmas..............plus MR Icahn,Lampert,McNamee are all SALIVATING to take juicy deals PRIVATE...................
That is why there is a pent UP demand for 10 year bond thus RISING yield...as Banks are borrowing heavily in the bond markets for EXPANSION & DEALS.
So why is that BAD for the market...if economy is GROWING & profit will GROW also.........
Good question........market HATES SURPRISE......market were very comfortable with 4.75% yield..................and WHAM...in TWO business days...we are at SKY HIGH 5.27%........
So market needed 2 or 3 days to deal with this REALITY...and complete its discounting mechanism......and move beyond the OBVIOUS.
So Relax................if we do not see rates @ 5.27% or more......markets will be fine from wed.....if not....then market needs to discount ....further UPTREND in YIELD............
I do not MEAN to make it so SIMPLISTIC....but it is EXACTLY as I laid it out.
It was nice to see some GREEN in this market @ close and they were:
NMX,CMED,AAPL,STP,FSLR,MA,OXPS,QID,LRCX,INTC,JDSU,KLIC,CROX.
This is a market where being DIVERSIFIED pays.
Good luck for wed trades.
BLOG does not give buy or sell.
Saleem
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