You fell for it didn’t you? The scary headline… works every time. 

I wrote that headline to save you the trouble of turning on your TV or following your favorite fear-monger. You’re welcome.

Let me sum it up for you – the bulls are currently in trouble.

There’s not a lot to be optimistic about right now. Especially if you’re holding a bunch of long positions in growth areas like Tech and Communications.

Last week, I explained how we were seeing a rotation within equities – not out of equities. 

The narrative coming into last week was rotation out of growth sectors and into more cyclical areas like Financials, Energy, and Industrials…

Which makes sense – cyclical stocks tend to do well in a rising interest rate environment where growth areas such as Technology can struggle.

Markets took on a very different tone throughout last week. 

Here are a few of the major indices… none are holding up under the pressure. The DJIA broke support and below its 200-moving average.

Transports are struggling to hold key levels…

The S&P 500 index broke previous support…

Keep in mind, we had already seen small-cap growth (IWM) fail on its attempted breakout and collapse below previous support levels.

And here’s the NASDAQ, which has begun breaking down in December, with over half of its constituents down more than 20% off their recent highs.

Up until now, it’s been high-growth stocks getting slammed – just look at Tech. 

But now, the biggest question entering this week is – what do the bulls have left to hold on to?

I think the only things left supporting the Bullish argument are Treasuries and Commodity prices. 

This chart may be one of the most-watched and most important charts on the planet right now. The 10-Year has to hold 1.75%.  

And to be clear, it’s holding that area, so we haven’t seen a failed breakout in 10-Year Treasuries… 

Yet.

Can Treasuries hold? If they can, what does this look like?

Well, I’d expect Value stocks around the world are doing well. Financials are doing well, as are other cyclical areas of the market. And that is what we have been seeing, up until now. 

To be clear, we have not seen a breakdown in the 10-Year Treasury – if we do, we’ll have to adjust our thinking.

That was the Bullish argument, but what’s the Bearish argument for equities? Particularly if the 10-Year yield breaks down?

It’s likely the selling pressure that was contained to growthy areas, such as Technology, spills over and begins to hit value/cyclicals. We’d expect to see Financials (specifically banks) fail, Energy sells off, as do Industrials and Materials. Bonds are getting bought in that environment, Gold probably catching a bid, as does the Japanese Yen.

Understand this, markets are fluid. 

Markets tell you what they’re going to do – not the other way around. 

We have to adjust to markets, markets will never adjust to us. 

Stay tuned and check back for updates to these important developments.