Friday’s session was an ugly close—the kind where all the buyers packed it in earlier in the session. Dow Jones Transportation Average (DJT) eked out a gain, but the market was red.

Heat Map

The better part of valor was to sell and hide.

Funds are flowing out of stocks, and that doesn’t help.

Earnings Season Heats Up

This week, we get the latest release of Jay Powell’s favorite inflation gauge, the Personal Consumption Expenditures report (PCE), on Friday, but until then, it will be all about corporate earnings. Big names on deck:

The second quarter was supposed to be the inflection point.

Today’s Session

That yield has become a juggernaut. Last October, the RSI flashed a major overbought signal, and the yield dropped back to 3.50 from over 4.50%.  This time the yield ran through the same RSI as a runaway locomotive.

It should be noted that the peak ten-year yield last October coincided with the stock market bottom.

The stock market is in a sell-first ask-questions-later mode, which feeds on itself.  There are several factors moving bond yields higher, but the inflation side of the story has improved enough for there to be equilibrium.

There needs to be one ‘shock’ inflation report that screams the worst is over to alter the downside bias in stocks and bonds.

This is such a critical moment.

We are combing through our positions in the model portfolio carefully with a focus on the balance sheet. The less the need for cash in the near-term, the better, and at the same time, checking other boxes from strong organic growth to widening profit margins.

These are the times to be on the prowl for opportunities, even as you are peaking out of a foxhole.

Soon it will be time to go on offense, but right now, key support for stocks and key resistance for bond yields must hold. 

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