Volatility, Treasuries, U.S. dollar point to weakening stock market
Yahoo Finance's Jared Blikre makes the case for a mean reversion in markets.
- Let's get on over to Jared Blikre, who's at the YFi Interactive. Hey, Jared.
JARED BLIKRE: Hey, there. I think some of the bearishness that we're seeing in the market this morning-- kind of a hangover from last week. And I'm going to get into the charts in a second. NASDAQ leading the way down, down 7/10 of a percent. If we're looking inside the market, here's what's happening early on.
This is our leaders in sentiment. It looks like cannabis-- MJ, that's in the lead here, followed by defense. But most of the action centering to the downside. KWEBB down there. Those are Chinese stocks. That's that ETF down 3.5%, followed by Bitcoin. Japan IPOs, emerging markets, homebuilders, chip stocks, et cetera.
Let me just show you what's happened over the last seven days, we've seen ARKK stocks and MEME stocks in the lead, followed by transports, retail. We had this really nice, broad-based rally. But a lot of it was being led by the junk stocks, and so that's what we see here. All this gives me pause, given the current market action. I think maybe we've gotten a little bit extended to the upside.
Now, here is the S&P 500. Had a little bit of a negative day with that hot payrolls report that we saw last Friday. And we're coming down from some pretty high levels. Some high levels I would say not shown here is RSI. That's various indicators that show you, do things get oversold or overbought? And when they get moving too far to the upside, a lot of times, they got a mean revert.
So I think that's what we may be seeing in progress right now. Now, the flip side is that if we were to squeeze to the upside-- you watch the S&P 500. We take out last week highs. Probably going to be more fast and furious action to the upside.
But here is the VIX. I'm going to show you a two-year chart. We hit some pretty far lows, to the lowest point that we've seen in at least a year. And usually, when we do that, we do seem to tend to see mean reversion in the VIX. And that would mean a spike back up, and that would be concomitant with stocks going back down.
Now, here's some more evidence. Here's a five-year T-note yield. That is bumping up now against multi-month highs. 10-year T-note also broke to the upside. These are the things that we've seen when the people realize that the Federal Reserve is still very hawkish right now.
Here's the US dollar. Final piece of evidence. I'm going to dial this down to a nine-month chart. But clearly, we have broken to the upside here in the Dixie. And then I want to show you what's going on with the Bank of Japan, because this is pretty critical here. Let me just show you a six-month chart.
Now, let me redo this to align so everybody can see it. Here we go. Still in a channel with the yen here, but the yen is moving overnight, weakening, and the US dollar here, strengthening to the upside. Yen is weakening to the downside here, or yen strengthening to the downside, here. That is happening because the Bank of Japan is going to switch out their current leader in April, Haruhiko Kuroda.
The frontrunner, who is Masayoshi Amamiya-- there we go-- he is probably going to be the most dovish counterpart to Haruhiko Kuroda. And so if this happens, we're going to see more dovishness at the Bank of Japan. BOJ is always a lagging indicator. By the time they get hawkish about policy, probably too late. So maybe a fig leaf that we're not there yet. But the strengthening dollar, higher yields, the fact that all these markets are overbought to the upside, especially in equities, just tending to tell me that we might be in a little bit of a mean reversion environment here.
- Jared Blikre, great stuff. Thanks so much.