The NASDAQ mini-bubble is popping


Overnight, US stocks took a pounding, down nearly 2%, led by the NASDAQ down 3%+. Data was thin but pretty good with unemployment claims down sharply. Bonds were heavily bid too, driving long interest rates down to new lows. In forex, there’s no apparent “risk off”. Despite China’s lousy data yesterday, it’s satellite currencies retained gains as the US dollar fell.

This looks like a bursting mini-bubble combined with rising risks around Ukraine.

From the top then, here is the NASDAQ 5 year chart:


We are close to or through the major uptrend line. Numerous other supports are broken and momentum indicators are deep red, there’s a nice little head and shoulders top in place. Volatility is rising and the large daily price swings are feeling very much a like bearish dynamics. There’s no serious support level until around 3000 points.

In bonds, the long end is firming fast. 10 year yields fell 2% and are sitting right on the bottom of a rising channel at 2.63%:


BofAML warned last that of this support breaks then 2.4% beckons.

The 30 year is already bulled-up with its yields launching off the empire state building:


The descending triangle break is confirmed and hit a new low overnight, also down some 2% to 2.53%.

Yet, in forex, it’s all good. There’s no run to the US dollar, indeed, it’s the opposite:


And that’s keeping the emerging market reflation trade that has dominated much of this year buoyant:


Not even a hint of “risk off” on the US dollar crosses. The Australian dollar remained firmly above 94 cents.

It looks to me like the NASDAQ mini-bubble is bursting. That’s feeding what looks to be a decent US stock market correction in the making. I don’t see this a cycle-ending event or anything so dramatic. Falling interest rates and dollar via the long bond are supportive for the US recovery. But the prospect of ongoing taper and rate rises next year with the growing risks of more serious conflict in Ukraine is taking the froth off the high-beta, high valuation end of equity.

My feeling is this will run.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. migtronixMEMBER

    Only been waiting for the hi beta trade to die for 4 years and counting now, still waiting.

    Gold’s decent gain would seem to imply a measure of “risk off”, not to mention FB down 5%. Odd session. I hope it does have legs…

    BTC slide continues unabated and it’s sub USD400 atm.

      • migtronixMEMBER

        Depends what risk you’re looking at I guess – in terms of bonds yes, but Macro Polo’s point re: end of QE is ringing in my ears.

      • I’d say I’m about 75% sure of QE ending being bullish for gold. It’s easier to make the case for Treasuries as they have acted in a very consistent and predictable way to each QE program – QE has made yields rise and no QE has made yields fall pretty much immediately, and it takes PHD economists to get it backwards.

        The problem with gold, is that I’m still not sure how much of the recent retracement is due to the QE ending effect, and how much is simply due to how bearish everyone was on gold at the beginning of the year – leading to nowhere else to go but up.

        Let’s call it a hunch for now. But we didnt see gold spike dramatically higher until the end of QE2, and the introduction of QE3 has seen gold fall from day 1. IMO everyone understands that QE won’t cause inflation, so QE is not bullish for gold as it means more financial stability and still no inflation.

        What does work in the gold trades favour, is that everyone still thinks QE is good for the price of gold. This seems like a misconception similar to the QE/bond yields on, as QE has been doing nothing for gold lately.

        The more consensus a view, the happier I am to go against it. We’ve seen all the consensus trades unwind this year because they were all ‘sure things’. AUD down, SP500 up, long yields up, gold down and so on – none of it has really worked.

        This leads me to think that when QE ends, and people are expecting it to be bad for gold, the consensus trade will get squeezed and gold will move higher. Again, I wouldn’t trade on this because it’s just a working theory.

  2. Well thankfully we don’t do any of that technology stuff in Australia, so we’ll be fine, just like we were in the tech wreck of 2000.

  3. Biggest Credit Bubble in History Flashes Warning: ‘Seek Cover’

    Hidden in the IMF’s just released 188-page Global Financial and Stability Report is a doozie of a chart that screams not only “credit bubble” but also flashes a red warning sign: “seek cover, implosion in sight.” It depicts US issuance of covenant-lite loans and second-lien loans since 2001, including their phenomenal bubble that so spectacularly collapsed in 2008, and the even greater bubble currently underway – with an equally spectacular future.

    .A record $238 billion were issued in 2013, according to Thomson Reuters. Over 50% of the market, another hair-raising record.

    “Leadership has been defined as the ability to hide your panic from others” H/T aby

    skippy… Hay Mig… just like in the military… ass to the blast… eh…. or conversely earth quakes in Calif… pillow over face and groin.

    • migtronixMEMBER

      My brother other than the fist 2 weeks of basic my 2 years of compulsory service had my @rse to the server 🙂

      And not I never did the pillow bitter thing either :O

  4. I see the stock market crash has just been locked in.

    I await HnH’s weeoo weeoo weeooo.