Morning Note: Mind the Gap

In yesterday's video commentary I, alluding to the intraday rally the market was experiencing at that moment, said "don't hold your breath here folks, this is not the kind of action you see during bull markets."

Well, judging by what is going to be a very impressive start to today's session (the bell rings in 4 minutes, and Nasdaq 100 futures are up big), perhaps that wasn't such a smart thing to say.

Well, I dunno, according to Bespoke Investment Group's note this morning, big opening gaps by the Nasdaq 100 have historically-occurred, believe it or not, mostly during bear markets, and, per the graph, preceding sharp corrections.

"Nasdaq: Following the positive reaction to Facebook’s (FB) earnings last night, the Nasdaq 100 is poised to gap up over 2% at the open this morning. Since the launch of QQQ in 1999, this would be the 119th gap higher of at least 2% and the third one this year. The red dots on the chart to the right show every prior occurrence, and the majority of them (70) occurred in the four year span from 1999 through 2002 while another 13 occurred during the Financial Crisis. There’s a reason they say, ‘big gains happen during bear markets’. It may not always be the case, but it happens quite a bit."

Of course we're not predicting a bear market right here, we're just assessing risk...

If you had told me yesterday that Q1 GDP would come in at -1.4% (reported this morning) versus the +1.0% expected, I would've told you to look for a rally in bond prices (sending yields lower).

Well, I'd have been very wrong. Here's a look at the 10-treasury yield (this morning circled):

Clearly, the details within the report (monster trade deficit, for example) explain away the miss, and, for now, offer no incentive for the Fed to soften its stance. In fact, Fed funds futures are actually pricing in slightly higher odds of rate hikes, and slightly higher rates, from the June policy meeting on, versus yesterday...

Asian equities rallied overnight, with 14 of the 16 markets we track closing higher.

Europe's seeing mostly higher stock prices as well this morning, with 14 of the 19 bourses we follow trading up as I type.

US stocks have given up some of their opening gains, but still, Dow up 128 points (0.38%), SP500 up 0.73%, SP500 Equal Weight up 0.44%, Nasdaq 100 up 1.12%, Nasdaq Comp up 0.76%, Russell 2000 up 0.20%.

The VIX sits at 30.70, down 2.85%.

Oil futures are up 0.38%, gold's up 0.29%, silver's down 0.58%, copper futures are down 1.11% and the ag complex (DBA) is down 0.10%.

The 10-year treasury is down (yield up) and the dollar is up 0.72%.

Among our 39 core positions (excluding cash and short-term bond ETF), 17 -- led by our semiconductor ETF, AMD, tech stocks, AT&T and Verizon -- are in the green so far this morning. The losers are being led lower by Nokia, oil services companies, metals miners, Mexican equities and base metals futures.

I also mentioned in yesterday's video that technicals (the analyzing of charts and related underlying factors) matter. Indeed they do, however, at the end of each day we've spent the bulk of our time assessing global macro fundamentals. 

Hedge fund manager Colm O'shea also respects the technicals, but per the quote below, emphasizes the fundamentals as well:

"People get all excited about the price movements, but they completely misunderstand that there is a bigger picture in which those price movements happen. Price movements only have meaning in the context of the fundamental landscape. To use a sailing analogy, the wind matters, but the tide matters, too. If you don’t know what the tide is, and you plan everything just based on the wind, you are going to end up crashing into the rocks."

--Colm O'Shea 

Have a great day!
Marty