Game of Trades: A Major Capitulation Event is Occurring on the Stock Market
The stock market broke down last week, rejecting a key technical level. That led to a large amount of selling in the week following, causing stocks to go back to re-test their June lows.
The move has the early signs of a capitulation event, which could mean an end to the current bear market. While it may not mean the start of a new bull market right away, it could be welcome news after the market’s performance this year.
The price action is similar to the market breakdown in June.
The market move has been driven by rising interest rates, as rising Treasury yields compete with stocks. With 10-year bond yields closing in on 4 percent, the return looks better than the volatility of owning a dividend-paying stock.
Plus, changes in bond yields have been a leading indicator. As yields have gone up, stocks have subsequently gone down.
However, investors are still concerned about inflation, which continues to run hot. And given the current high rate of inflation, the Fed funds rate still remains too low to provide a real return.
That suggests further rate hikes are likely, which could continue to add pressure on the market. But a change in the rise of interest rates could give the market what it needs to come off its bearish outlook.