Cyber Monday came early to the stock market, as the major indices quickly reversed all losses going back to Tuesday of last week. Investors are hopeful the Fed will become dovish, the trade skirmish with China will end at the G-20 meeting and that OPEC will cut production. Stock prices shot higher on above-average trading volume in early trading, but there is no sign of the big money buying in.
General Motors announced this morning they will close 7 plants and layoff 14,700 of its North American workers, or 15% of its workforce. Eighty-percent of homeowners who refinanced in Q3 selected the cash-out option, a number last seen at the cycle peak in 2007. Despite claims of a robust economy, this information confirms that many American households are struggling to get by.
Ten-year Treasury yields moved slightly higher in early trading, however, they held a recent support level on low volume. Low volume is an indication the short-sellers are exhausted. The Fed is scheduled to destroy over $17 billion on Friday as part of their balance sheet unwinding program, which many interpret as bullish for yields. The late famed-economist Milton Friedman showed periods of monetary tightening lead to lower long-term bond yields, not higher.
Today’s 2-year Treasury auction saw direct, or domestic bidders come back in a big way. This is an early indication that money managers are shifting their allocations into bonds. Ten-year Treasuries held their recent support level.
Stocks rallied into the market close, which is something they haven’t done in with much consistency over the past few months. During Bull markets, stocks will rally into the market close. In Bear markets, stocks sell into market close.
Today’s move ought to set up a retest of the recent overhead resistance levels, however, I still believe the major support level from the past twelve months will be tested at some point. Despite today’s large move in stock prices, trading volumes were 30% below average.