As noted in all of our recent analysis, the fundamental backdrop was just not consistent with any orderly push higher in U.S. interest rates triggering a sharp reversal of the U.S. equities' major bull trend. Of course, that still meant after the U.S. 10-year T-note yield swung above its 2.62% four-year high back on Jan. 19 (incidentally the same day as our Showdown at Govvies Graveyard post) the higher interest rates might disrupt the U.S. equities’ runaway upside (parabolic rally) psychology.
The sell-off that followed the positive January employment report on Friday should not have been a surprise. It was the typical market reaction to strong economic news during the early stages (relatively speaking) of a tightening cycle. Positive economic news could be inflationary and push the Federal Reserve into a more aggressive tightening phase.
The S&P 500 settled at 2607.75 and has lost 7.6% since Thursday’s close. Today’s session stalled at a high of 2763, and failed to hold the key level at 2757, a trend line and Friday’s close. Price action began cascading below the overnight low of 2733 and all bets were off once our rare major four-star support at 2690-2700 was taken out.