Major averages sold off yesterday on higher volume. Overnight European stocks had sold off hard on fears of Italy exiting the European Union and issuing its own, parallel currency. Bonds rallied sharply as a safe haven play, with the 10-Year Treasury Yield plummeting to 2.76% after reaching a four-year high above 3.10% last week. As we pointed out in our webinar of May 18th, interest rates were more likely at the highs of their four-year range rather than on the verge of a powerful new breakout. After all, you can't taper a Ponzi Scheme, and we have felt that the Fed's ability to raise interest rates aggressively is limited given current conditions. These would include an existing sovereign debt bubble of over $45 trillion and the fact that other central banks are not following the Fed's lead in increasing their own interest rates. Caution is advised, and investors should heed near-term selling guides.
Futures are up as well as European equity markets on short covering and bargain-hunting but serious political issues remain over Italy and Spain. Regarding the fate of the EU, investor George Soros said, “Everything that could go wrong has gone wrong," citing the refugee crisis and austerity policies that catapulted populists into power, as well as “territorial disintegration” exemplified by Brexit. “It is no longer a figure of speech to say that Europe is in existential danger; it is the harsh reality,” he said. The “termination” of the nuclear deal with Iran and the “destruction” of the transatlantic alliance between the EU and the U.S. are “bound to have a negative effect on the European economy and cause other dislocations. We may be heading for another major financial crisis.”
Focus List Notes:
AMZN posted a new all-time closing high on increased but still well below-average volume.
SQ broke out on below-average volume. The breakout does not appear convincing, however, and we would not be surprised if it failed altogether in any continued market pullback.
Market Lab Report - Pre-Market Pulse for Wednesday, May 30, 2018
|30 May 2018 07:51 ET
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