Street Calls of the Week
Interesting day in the markets, with the S&P 500 falling by more than 1% and the NASDAQ 100 down about 1.8% yesterday. More importantly, the index fell below the 200-day moving average.
The NASDAQ 100 is showing more of a rising megaphone pattern, but ultimately, these patterns represent the same thing: continuation patterns of the previous trend. The NASDAQ 100 also failed to break through its 200-day moving average.
If yesterday's declines are real, they should not only continue today but accelerate to the downside, breaking the lower trend lines and undercutting the mid-March lows before the week is over.
There’s an opportunity for this, as liquidity is expected to tighten over the next few days heading into quarter-end. Yesterday, reverse repo facility usage rose to $240 billion, and it’s likely to continue climbing.
This overnight funding market isn’t exactly filled with transparency. Still, based on my data, the general collateral rate in the overnight funding market rose to 4.45% today—a further sign of liquidity drain. This could be reflected in SOFR moving higher tomorrow, following its rise to 4.33% from 4.31% yesterday. Again, it’s not unusual to see SOFR rise into quarter-end.
Credit spreads widened today, some, as seen in the Markit CDX HY Index, which rose to 341. But more importantly, it almost appears that the spread has a bull flag that has formed. If that is a bull flag, the moves we have seen in this market thus far will be nothing in comparison to this spread breaking out and what it would represent.
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In the meantime, one- and two-year inflation swaps are moving higher as well, and those, too, look like bullish continuation patterns.
We could review more, but I would rather see how today plays out.
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