One Track Hides Another
The 10-year US Treasury yield is lending a helping hand to equity markets. But don’t mistake this boost for good news.
Beaten down since the Iranian conflict began, the 10-year US Treasury is catching its breath this Monday with yields dropping 7 basis points from Friday’s close. Unfortunately, while this drop mechanically supports equities in the short term, it reveals a much deeper problem.
As the Iranian conflict enters its second month, investors’ main concern has shifted. They’re no longer worried about inflation taking off due to soaring oil prices — they’re worried about US growth getting hammered by the war.
Inflation that could run wild (with Brent crude at $108 this morning) combined with growth that could stall thanks to economic players losing confidence and creating a self-fulfilling prophecy… and suddenly the stagflation scenario is charging toward us.
The retrospective
After touching 46,000 points at Friday’s open [1], buyers quickly lost their footing.
The sellers’ first offensive brought the market straight down to daily support 2 [2]. The second wave then pushed Dow futures to daily support 3 [3], marking a new annual low.
Today's trading plan
Still in control, short sellers have taken profits at monthly support 4 in pre-market trading.
Despite the strong selloff, sellers remain relatively cautious while buyers stay relatively optimistic — suggesting the downward move has more room to run.
In this context, I’m still favoring short trades, but with quick profit-taking at key intraday levels until buyers really get trapped in the current bounce.
Happy trading!
Maxime holds two master’s degrees from the SKEMA Business School and FFBC. As founder and editor-in-chief of NewTrading.fr, he writes daily about financial trading.
Good signs
Strike zone
Some gift