The Gilmo Report

October 7, 2018

October 6, 2018

The weakness in bonds earlier this past week combined with numerous divergences as discussed in Wednesday’s report came to fruition on Thursday as the indexes broke hard to the downside. The instigator was alleged to be spiking interest rates. The 10-Year Treasury Yield ($TNX) moved to its highest levels since the financial crisis of ten years ago, pegging at 3.225% on Friday.

 

GR100718-$TNX

 

The spike in rates across the board spooked the indexes, and the NASDAQ Composite Index broke sharply to the downside on Thursday. A -1.81% decline on higher volume was followed by a similar decline on Friday, but volume declined. At the same time, the index undercut the August 15th low and rallied back above it, triggering a short-term undercut & rally move.

At that point on Friday, the selling in leading stocks, which in many cases began earlier in the week, had reached a crescendo. The oversold condition in many leading stocks, combined with the undercut of the August 15th low, sparked a rally off the intraday lows. The index remains, however, in a compromised position, and remains below near-term resistance at its 50-dma.

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