Markets end on a strong note after mid-week interest rate jitters

February 23, 2018 – The markets closed on a very strong note today. After two turbulent weeks in the market, this past week brought relatively low conviction either to the upside or the downside until today. Today the indices finished on their highs for the first time all week. Today we also saw the 10-year Treasury yield retreat a bit.

Equity prices continue their tight negative correlation to interest rates. As rates go higher, stocks fall. Interest rates have risen sharply this year. Many analysts fear that a yield of 3+% on 10 year Treasuries could act as a brake on stocks going higher.

This chart of 10-year Treasury yields shows the rapid increase in rates since the first of the year. It also shows the recent pullback from the 2.9+% level that was worrying the markets:

Source: CNN

Volatility diminished from last week, but we saw large selling pressure erupt after the publication of the FOMC minutes at 2 p.m. on Wednesday afternoon. The report pointed to strong growth in the economy and led investors to believe that the schedule for interest rate increases could be more aggressive than previously anticipated. Interest jitters took the Dow from being up +300 to down -167 by the close.

The weekly chart below of the S&P shows how the markets have bounced:

The upward bounce in the NASDAQ 100 has been even stronger.

We expect continued volatility, which is actually a positive for swing trading. Swings in the Dow of 300 to 500 points in a single day are still fairly common. A move of about 1% per day in the major indices is the historical norm. In 2017 we were often at only half this level. The current measure of daily moves in the indices is averaging about 2 ½%, using a look back period of 14 trading days.

Indices

Here is a look at the charts of the major indices at close of trading Friday:

NASDAQ

The NASDAQ 100 has rebounded above all of its moving averages from the 9 day average to the 50 and 100 day averages. The NASDAQ 100 has demonstrated a stronger rebound than the S&P or the Dow.

SPY

After closing on either side of the 50 day moving average, the S&P closed the week above its 50 day average. Volumes on the indices were lighter this week than last.

Volatility VXX

We can see that volatility was elevated midweek on the release of the FOMC minutes. Today’s strong market action brought the volatility back to the levels of the beginning of the week. Volatility still is more than 50 percent above the levels in January. This suggests that we are likely to see continued volatility.

FSS Swing Performance Update: 12 of last 14 trades profitable

Since the onset of the recent market meltdown, we have closed 14 trades, 12 of them profitable. Our two losing trades lost 1% and 1.4%. We had 7 bearish positions and 7 bullish positions. Our two bullish trades added in the past two days are currently profitable.

FSS Swing Trading Strategy Update

As the markets settle we expect to have an increased number of open trades. We will continue to track the 10 year Treasury yield closely, as that is a driving force for equities at the present time.

We will also continue to identify both bullish and bearish trade opportunities.

This week’s activity in our positions

This week, as the markets spent the first four days of the week contemplating what is next, Full Swing Stocks had fewer positions than normal. After coming into the week flat, we opened just 3 positions, one of which is closed and two of which remain open.

Our two open positions that we opened Wednesday are up modestly:

  • SKX +.7% (Skechers)
  • CNCR +.6% (Loncar Cancer Immunotherapy ETF)

Our closed position is:

  • TTWO -1.4% (Take-Two), Short

 

 

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