Have We Made the Initial Bear Market Low? The December 2018 Level Continues to Hold - Chaikin Analytics

Have We Made the Initial Bear Market Low? The December 2018 Level Continues to Hold

US equities finished higher in Thursday trading, led by Discretionary and Energy. Materials & Financials also saw solid gains. Treasuries were stronger across the curve, helped by a big rally in European bonds (particularly Italy). The dollar was stronger on the major crosses. Gold finished up 0.1%. WTI crude ended up 24.4%, reversing Wednesday’s losses amid reports the US may intermediate in Russia and Saudi price war.

Where can a bear market bounce take us? While we can’t be certain that the initial low has been set, we can begin to look at upside potential if it has been set. The key retracement levels from the February 19th high to Wednesday’s low provide a possible roadmap for a bounce. The 38.2% retracement level is 2,707; the 50% retracement level is 2,838; the 61.8% retracement level is 2,969. 

S&P futures are up 4.5% in early Friday trading. Asian markets rose overnight. European markets are seeing big gains. Treasuries are mostly stronger with the curve flattening. The dollar is weaker on the major crosses following a recent flurry of gains that have raised concerns about a dollar storage. Gold is up 2.0%. WTI crude is up 7.9% after a nearly 25% bounce in the prior session on report US considering intervening in Saudi-Russia price war.

Key Themes and Relationships

High Yield vs. Treasuries

The relationship between high yield bonds (HYG) and intermediate term treasuries (IEF) speaks to the extreme fear that we have seen in the market over the past three weeks. The ratio is extremely extended below the 200-day moving average, has broken below the lows from 2015 and has room to the 2008 lows. The RSI is in an oversold position, confirming the weakness in the price trend.   

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