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The Equity Breakdown – Interest Rates and Emerging Markets – Fear Factor

The Equity Breakdown - Interest Rates and Emerging Markets - Fear Factor

Tech shares fell again on Wednesday, with Microsoft down over 2.5 percent, with the Nasdaq composite down for the day by 1.8 percent. The Dow Jones Industrial Average fell by 259 points. The S&P 500 Index, a broad index that was clearly targeting a 5 day drop, fell below its 50-day moving average – a closely watched inflection point that attracts selling from day traders to large systems traders. A break in the 50 or 100 day moving average is followed by panic selling in some cases. 

While our key method of entering long positions is implementation of reversals, we tend to look at the breaks of key 50 and 100 day moving averages as signals to start look to build positions. In short, when there is panic selling at key inflection points, we are usually looking to buy, especially in overextended markets that are oversold. 

The sharp rise in the 10-year Treasury note yield traded around the 3.23 percent a day after hitting it hit its highest level since 2011. The 2-year yield hit its highest level since 2008. 

And despite the fundamental environment still strong and robust, there are many market participants who are pulling out and fading away as fears of a major sell-off rise. Some long-term investors are happy to reduce size to add again in two weeks to a month – we tend to agree – markets are skittish. We see the trade war wth China getting much wore, the Italian and Turkish economies in trouble and more fear in South Africa. EM could come under renewed pressure after the next rate hike in the US. 

Team Classiarius 


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