Morning Comment: No, it's not different this time.

Although the monthly employment report can sometimes create a big move in the marketplace, it certainly doesn’t always do that, so today could end up being a real yawner of a day. (If we don’t see much movement in the morning, you could/should see a lot of people in New York head out of town by noontime today…given how bad the weather was last weekend in the Northeast.)

That said, if we do get data on the employment front that is a lot different than what the consensus is looking for, the move in the markets could be a big one. As we have highlighted many times recently, both the bond and stock markets have been stuck in sideways ranges for 6-7 weeks now. Whenever any market gets stuck in a multi-week range, the move in the direction of the “break” tends to be a big one…once it finally takes place. Therefore, we could certainly see some fireworks today.

Earlier this week, we highlighted the support and resistance levels for the yield on the U.S. 10yr note. Today, we’d like to do the same thing for the yield curve (the 2yr/10yr spread). The situation is basically the same as it is for 10yr yield. In other words, the support & resistance levels are the lows and the highs since mid-April…but it will take a break above the March highs to confirm that another steepening leg for the yield curve has begun. (Therefore, there is just one support level. On the resistance side of things, there are two levels, BUT a break of the first level will still be compelling. It just won’t be definitive.)

As the first chart below shows, the support level on the 2yr/10yr spread is 138.67 basis points (the closing low from April 22nd). The first resistance level is the May 12th high of 152.50 basis points. The second level is the March 31st highs of 157.62……….Therefore, if a surprising weak number this morning is the catalyst for a move below that support level tomorrow (or at some point in the near future), it should lead to a decent sized flattening of the yield curve. If, however, it’s a strong report…and it causes the yield curve to steepen enough to break above its resistance level(s), it could/should signal that a decent sized (further) steepening move will follow over the coming days & weeks.

If (repeat, IF), we do get a break of either its key support or resistance levels as we move through the month of June, it should have an important impact on the stock market (especially the tech stocks). Needless to say, if the yield curve breaks below its key support level, it should be bullish for stocks…and if it breaks-out to the upside, it should be a quite bearish development…….Again, there is no guarantee that this morning’s data will indeed be a big market mover…but the key levels to be watching in the Treasury market are well defined. Thus, we’ll be watching them closely if any of them are tested due today’s data…or for any other reason over the next few weeks.

Shifting gears a bit, we just wanted to touch-on AMC and the meme stocks one more time. As we mentioned yesterday, we believe the action in AMC shows that today’s stock market is not a healthy one. We think it shows that there is too much liquidity sloshing around the system with no place to go (because so much of the stock market is expensive). Therefore, it’s merely chasing the momentum asset class du jour. That’s not good…because when the liquidity becomes less plentiful (as it looks like it is going to become in the not-too-distant future)…there will be a reckoning. Not only will there be less money to chase the asset du jour, but it will cause the at least some of the “unwinding of leverage” that has built-up to record levels over the past 12-15 months.

It is amazing to us that some people are looking at what has happened this year to stocks like Gamestop, ViacomCBS, and now AMC…and they’re suddenly saying (or at least implying) that “it’s different this time.” We have college professors saying that some of the old valuation metrics have become obsolete…while other pundits are saying that we are in a “new market environment.”……We’re sorry, but that thinking is laughable. These people will look very stupid when the market sees a deep correction. They will (correctly) be criticized for not sighting the fact that a stock like AMC can see TWO rallies of over 700% in just four months…and that an entire asset class (cryptocurrency) can experience major moves…merely because one person sends out a tweet.

Don’t get us wrong, the way we all look at the markets DOES shift from time to time, but to suggest that some of the best time-tested indicators are now obsolete is ridiculous. The comments we’re hearing this week are VERY reminiscent of the comments we heard in 1999 and 2000…when the “new economy” was spewing from the mouths of many pundits several times a day…every day.

We all know how that worked out.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Jun 04, 2021 — 8:06 AM
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