MAGGIE LAKE: Welcome to Real Vision Daily Briefing. It's September 21, 2021. I'm Maggie Lake. Tony Greer, editor of the Morning Navigator is my partner today. The mood out there, pretty cautious US stocks like bounced around all day. We saw an early equity rebound fade only to swing back and yep, fade again. The S&P 500 settling pretty much unchanged. Only the NASDAQ bucking the trend. The 10 Year Treasury also little change yield at 1.32%.
Yields on the 10 Year in Germany, Netherlands and Switzerland all remain in negative territory. And in commodities, the Bloomberg Commodity Index down for the fourth straight day. Tony, great to see you. I think we should have known that the US stock rally rebound. It looked a little shaky when you tweeted that some kiddie your neighborhood was waving a turnaround Tuesday sight.
TONY GREER: That was a joke. That was a joke. Literally every report that I read starting with two or three yesterday, started speaking about turnaround Tuesday, like the selloff is some kind of a joke. It's like, oh, we're going to go and apply the meme. We're going to do the whole thing. We're going to buy the F and dip and it's going to go bad. You know what I mean. It's like that's nice and interesting but it's different this time. And I understand that there are a bunch of nuances to that. But in my opinion, it's different this time. And I'm a little bit not on edge for a major fallout but I think that we're going to have a little bit more downside to navigate--
MAGGIE LAKE: Why's it feel different this time?
TONY GREER: Well, for me, it's a different as a tape watcher and a price action junkie, Maggie. This test of the 50-day was very different than all the last ones. The last one would that formula that we've had that I've gone over so many times, the readers probably don't want to hear it anymore. But it's that one touch of the 50-day that comes after two down days. We have a red to green recovery and off, you go to the races again. After we have a severe downside tick index print a couple of big selling days.
This time, we moseyed our way down to the 50-day moving average. We traded around a couple of days and above it, and then we went out on Friday's close looking lower. And that's something that we haven't done during this whole entire rally from the lockdown lows. So, for me, I'm already sitting up on my chair on Friday afternoon. We come in Monday, and we have that spill that everybody is waiting for. We've got another blow up in the Hang Seng Property Index. We've got a new low.
And I feel like that's what the type of narrative that we're going to roll into now, where we're going to come in every morning, turn on our screens, look to the Asian markets and say, okay, what blew up? Then how do I have to adjust for that? So, that's why I think it's different this time is that we aren't reacting to a headline that is going to remain in the past and stationary, like we reacted to the FOMC meeting, we had a little sell the fact sell off, like we reacted to the headline CPI number back in May, we had a little sell off.
But those reactions were to something that is going to stay static and in the past. Evergrande to me sounds like a developing situation. Sounds like a situation where when banks aren't getting paid, that there is going to be a distressed situation associated with this. And I do not trust China in any way shape or form to do the right thing financially either for Evergrande for the markets or for anything. And that's just the position that I'm in right now. And I'm just not in a position to give them the benefit of the doubt that they're going to patch this whole thing up.
Now, I don't think that they're going to let the financial system come apart. I don't think they're going to let banks fail. But this is going to be a slow-moving process to see where the epicenter of this damage is. And if it's fair to say, and I'm not an expert in Evergrande or that bond situation, but I don't feel like we've gotten to the center of the onion of it either. So, with that weighing in my mind and now I've got one half of a step worth of confirmation toward that today.
Today traded just like the market was expecting a turnaround Tuesday. Yesterday on the lows we came in and we had a minus 2000 tick index print on the bottom and absolute bomb. Everybody's hurling. We trade below the 100-day moving average and we bounce back above it. Today, everybody's saying oh, that was probably the low because we bounced off a moving average lift by him. So, today we get a tick index extreme on the highs of plus 1500.
So, everybody to me seems like they were on with this plan. We're going to buy turnaround Tuesday. We're looking at the high yield market in the US, no signs of stress there which is pretty much absolutely true. And what happens at the end of the day? We roll right over back to the opening price which is the low of the day. So, everybody that bought turnaround Tuesday is sitting there holding on to their stock right now.
MAGGIE LAKE: Tony, I love that joke because to me when you say that it represents the newer entrants in the market. Like they are younger. In long stretches of this price action, they have been conditioned to buy the dip and there's nowhere else to go to trade, so I love that. That's what that seems like today.
TONY GREER: Well, exactly. We've got into this habit of expecting immediate gratification with the cryptocurrency performances, with the NFT performances, with even the equity performances. The younger traders see the point of stress. They say the market sold off, that happened in the rearview mirror, that means we resumed trend. And while that is probably going to be drew at some point, the path that we get back to that is everything for me.
So, I want to at least be prepared to buy a dip to 4100 to the 200-day moving average, should that occur? I've got to make some adjustments today. I can't just sit here long the market like I have been and participating in different things. But I can't just sit here long and say, okay, I'm going to wear a 200-point slide and then start buying again. That's just nope, that's not a strategy.
So, when I look at things today, like the equity close toward the lows. When I look at Aussie/Yen closing toward the lows, that's been a good risk barometer. I still get a little nervous that maybe we're in the fifth inning of this sell off. That's where I am right now.
MAGGIE LAKE: So, you mentioned the 200-day moving average, because it seems like a lot of people are really focused on that right now. Are you watching that or is that something that we shouldn't get distracted by all that talk?
TONY GREER: No. I don't want to be what's called like a moving average monkey and base every one of my decisions off of that. But for me, when things get volatile, these things start to come true, more and more often. They become self-fulfilling prophecies, where the moving averages are where people-- they put their lines in the Fed and they say, I was trying to buy the market. So, I'm going to buy it down here on this dip and see what holds and what I should stay in.
The problem that I have is that with things feeling different this time, the 200-day moving average is about, let's call it 240 points away from the last sale. We've got a lot of stress. And I feel like when the stress in the markets that I've seen them play what I call a moving average hopscotch and that's where everything is going just fine in a security. And all of a sudden, all at once, it goes from the highs to the 50-day to the 100-day to the 200-day.
Then the market has to say, whoa, what's going on here? Was that the end of the rally? And are we now going to waterfall, or is this a place that I could stick some bids in and buy the market? Now, should we get to 4100 in the S&P given what I've done in the last several days, I am in a position to inhale the market? Whether that's right or not, and whether we get down there, that's how I'm playing it because that's what the screens is telling me is still possible when I look at what's going on in the rest of the world.
MAGGIE LAKE: So, would you expect, if people are also share your concern about where we are, is this a rotation within equities to a safer place? Is this out of equity somewhere else?
TONY GREER: That's a great question. Treasurys have bounced a little bit, but they haven't shaken up out of their range at all. So, that doesn't need me to believe that we're in any asset allocation shift. If it's fair to say the dollar has been bid and right back to the top of the range at 93.5 in the dollar index. To me, that is my risk now as a commodity bull, if the dollar breaks through 93.5. And as I'm not really a believer in triple tops, I'm already trading as if the dollar is through there mentally.
I just think that eventually it's going to happen. I'm anticipating a little bit the way you would shift an outfield for a right-handed power hitter. I'm shifted all the way into left field, waiting for that to happen. So, if we get that, I'll be in shape, but if not, I've got another couple of tactical ideas along the way. But I guess my biggest issue is if I'm going to allow the commodity markets to pull back from the highs, and I feel like the rest of the market that not connected to commodities is also under pressure.
That's why I get this fear that the S&P is going to try lower. You know what I mean. The sector that I'm bullish, the commodity sector, there's risk there if the dollar gets above 93.5. We saw what it could do earlier this week. It's already knocked copper way back on its heels, almost below LME 9k really relevant. Not much of a dip in the energy markets which is encouraging to me as that is the epicenter of where I want to stay bullish commodities. There's going to be a commodity pullback there.
I want to buy energy on this pullback if the Evergrande situation causes a pullback there. I think those markets underneath are still going to be markets that are remain in secular bullish condition. They remain backwardated. We've still got this story about European natural gas trading record highs due to the power costs there. Everybody is shifting towards ESG. We can now look over at the EU for the model for what it's going to look like. It's going to look like a lot higher energy costs, and at times, almost emergency situation type energy costs.
So, that's how I'm pivoting my world through this Evergrande shake up, something that's definitely not fatal to the bull market, but something that needs to be respected if you're going to trade within this volatility. So, we just had the VIX wake up and finally get above 20 and show some signs of stress. And I just want to look here to see what the day's high was. And today, we didn't even touch yesterday's--
MAGGIE LAKE: Yeah, I was looking at that, too. And so, you weren't really seeing that fear there. We're going to circle back in the coming days. I love that broad theme that you just talked about in terms of ESG has been coming up in our conversations a lot. I think it's a really important one. I want to pull it back to Evergrande for a second because we had-- you're looking at the dollar movements, of course, for your commodity trades.
But we do have this Chinese situations, Evergrande situation looming exacerbated perhaps by the fact that the Chinese markets have been closed. Asian markets, some of them have been closed for a holiday and they're going to be reopening. I want to play everyone a clip from a conversation that Jack Farley had with Anne Stevenson-Yang, who's a China expert that had it live a little earlier today on Real Vision where they discussed the knock-on effects of the company's looming default. Let's have a listen.
ANNE STEVENSON YANG: The impacts are enormous. So, we already talked about iron ore and copper and to some extent, cement, to the extent that it's [?] and to some extent glass. But there's also elevators that are directly exposed to Chinese construction, and those are mostly foreign supplied. Then there's a derivative of consumer spending, so consumer spending within China. So, even though Alibaba and JD and VIPS are listed in the United States, they depends on Chinese consumer spending. So, will there still be confidence that that will grow?
Then there's the auto companies within China and the auto companies in the US and elsewhere that depend on Chinese spending. Now, how about BMW? BMW has done very, very well in China, but the price of an average BMW within China is much higher than it is in Germany. And that's a little bit mysterious. And clearly there's not enough earning power in China to be paying for those BMW. So, why have people been buying them asset sales?
MAGGIE LAKE: Everyone who has a Plus or Pro membership can see that entire interview. And I love hearing from people who are in the weeds. One of the things that so hard, Tony, is it's so hard to know what's going on in China. We just don't have reliable data. We don't have reliable information. But I think Anne's touching on a really important point here. When she's talking about all the knock-on effects, it really seems like it's from a potential slowdown story as opposed to maybe a financial contagion story.
And there's a lot of noise around that. Is it the next Lehman? Is it the next Lehman? She's really talking about the effects through all these goods and products, if this causes the Chinese economy to slow down, how are you looking at this? How are you trying to approach Evergrande when it is so hard to have reliable information on it?
TONY GREER: From a primarily US macro trader's perspective, the information coming out of China has always been something that you have to take at face value. There's always been suspicion about how they mark their economy, etc., etc. And I don't want to go into any conspiracy about that. I just want to say that yeah, like you said, it's hard to get accurate financial news and accurate financial opinion from things that are going on in China.
So, what all I can do every morning is. Maggie, watch the tape and see where the stress is coming out. Are they selling Evergrande stock even further? Is the Hang Seng Property Index imploding further? What does it sound from the bond traders here? Is there a spillover to credit markets here? I don't expect there to be direct spillover, but you expect potential sentimental spillover, just like we saw Monday morning when everybody said, let's lighten up equities until Evergrande gets sorted out.
MAGGIE LAKE: Right, exactly. Because you don't know how long this is going to last. We are getting questions. This is one from Todd, before he even kicked off, worried about do you see Evergrande situate leading to a construction slowdown in China? Again, putting long-term pressure on commodity prices, maybe the flip is if we see pressure from commodity prices there, where do we look to for support? What are some of the reminders of the themes that you've been looking at? And you're not the only one. We spoke to Mish Schneider earlier this month and she was also focused on commodities. What are the supportive narratives? If China might be a risk, what are the supportive narratives?
TONY GREER: Well, China being the risk of maybe relinquishing their position as one of the biggest oil consumers in the world. So, we're talking about the big elephant in the room consumer that has been increasing their consumption almost 10% a year for every year in the last 10. Inevitably there's going to be a pullback from that because trees don't grow to the sky in a straight line. Well, I would imagine that what could happen to the energy market, it could be what to happen to iron ore.
And so, that's something where I have to respect the idea of a follow through to the downside in some of the commodity markets based on the controls that China is trying to implement, whether they're emissions controls, the energy controls, etc., etc. The iron ore was soaring away over 1001 per metric ton. China made a lot of comments about trying to take the inflation edge out of the commodity sector. And next thing you know, iron ore is 701 per metric ton offered and cascading lower. All of this going on, while the steel markets remained bid.
So, there is a lot of confusion for commodity-based traders like me as to what to do with that complex. That's what they allude to one of your questions earlier, that's one of the confusing signals that comes out of China. Iron ore crashing and the price of hot rolled coiled steel rallying to new high every day, isn't something that you see very often, they're often much more connected. But what it plays into is bigger margin for the steel makers at this point. And you would think that they'd be rallying, but they're not.
So, there's another point of confusion to throw into the works. And a lot of that alongside, Maggie, and I'm going back to the question you asked before is why is it different this time? There was a lot of widespread damage yesterday. And all of this widespread damage took place at new prices and a new dynamic. These were cascading new prices. Ownership is changing hands at a dramatic pace. You're seeing volumes explode across the board in a couple of different names.
And what's going on now, we'll see if we going to get back to that main point. There were greater than two sigma slides across about eight sectors yesterday, not just individual stocks, entire sectors. So, that means that there's a lot of damage under the hood. And it means that somebody is holding on to all of this length yet. And to me, that's going to take a lot of time to redistribute out to the markets again. And so, that's where the risk for me is to trading lower is to add that length gets redistributed, then we're going to have a chance to buy things at lower prices.
But for me, the one big thing that I don't want to let out of my trader brain is that we saw more equity inflow in the first eight months of this year than we have in the past decade combined. Now, I do believe that a lot of that is sticky money because it's