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Morning Matters:

Why 3.26% Is A Key Number
by Geoff Garbacz

May 16, 2018

What do I make of today's action in the stock market? That is a question that I got asked several times today. Here are my thoughts.

First, it would be premature to think that the world is coming to end again. Many are still feeling the pain of the action in February through April.

A little perspective is needed for market participants after today. The S&P 500 lost only 0.68%. Meanwhile, the Russell 2000 was flat for the day returning 0.00%.

The SPY tested the close from the April at $270.37 and it held. QQQ, IWM and MDY are also still above their April highs. So for now, today is just hiccup.

However, the Dow Jones Industrial is now back below its April high at $247.80. A potential problem that needs to be watched.

The advance/decline was only -894 hardly a concern. In addition, advance/decline lines remain in good shape both on a daily and weekly basis.

The 10 day average of the advance/decline line is +605 and we moved our A/D Line Model to a buy on the close of May 8th at 2671.92. Today we closed at 2711.45. Not an issue.

The real issue is whether interest rate yields on the long end of the curve on 10 year, 20 year and 30 year bonds are going much higher. Stocks threw a fit as yields rose from December to February.

That rise on the 10 year was from 2.38% to 2.94% a rise of 0.56%. The stock market said enough and threw a fit in February.

Currently, the rise is 0.32%. This is manageable. If we get back above 0.50% or 3.26% then we much change our opinion.

For now, there is no need to panic and you have a couple metrics to follow to see if we are going to a higher Defcon level.

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