Tag Archives: TNX

Message from Interest Rate Divergence

Message from interest rate divergence, first, and relentless yield slide, since the divergence, finally heard, as Goldman becomes the first to revise GDP down

tnxd 02feb14

tnxw 02feb4

tip-tlt2-1-14

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Short-term trading risk aside, trends in interest rates, T-bonds and rate-sensitive stock sectors all inconsistent with bullish economic forecasts

tnxd 30jan14

xlu-xli 30jan14

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What the Federal Reserve is selling, only the stock market is buying; bond traders are having none of it

tnxd 29jan14

tnxw 29jan14

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Weekend update, looking ahead to this week’s FOMC meeting

If few admit surprise that the S&P corrected in January, most will confess that the sharpness of the sell-off so far was totally unexpected.  But one-sided sentiment on either side should always be cause to expect the unexpected.  At this juncture, it makes sense to expect a test of S&P support near 1775, followed by a rebound.  Why?  A) The market is short-term oversold, and will be more so at 1775.  B) The intersection of support at 1775 – a retracement level, a neckline and the 100-day moving average close by – is substantial.  And C), an FOMC meeting is scheduled this week.  The primary question is, will the Fed taper, as most believe, and risk further currency fallout in the reserves-withered Emerging Markets?   And will taper-no taper matter, if Japanese PM Abe can’t slow the global carry-trade un-wind?

spx 26jan14

Unlike the S&P or the Dow Transports, the Dow Industrials have not posted a new high in 2014.  The significance of that divergence increases with each broken support suffered in this decline.  Should next support near 15,700 give way, it might not doom the Dow to bear market inevitability, but it will reduce the probability that the Dow Theory violation can be corrected.

indu 26jan14

Speaking of the Transports, Friday’s 4% decline seems significant beyond its point loss.  Coming 24 hours after Thursday’s new all-time high, the largest percentage decline in 3½ years almost has to signal an important trend reversal.

tran 26jan14

Still, the bell cow this cycle remains the Nasdaq Composite.  As long as the COMP’s bullish trend channel points higher and to the right, investors will view pullbacks only as dip-buying opportunities.  Expect that theory to be tested this week, but odds are that it will pass with flying colors.  Its current pullback already looks extended, yet its next serious test of support remains comfortably distant.

compq 26jan14

But two developed warning patterns that have begun to signal are lurking in the longer-term background.  The first, below, is the VIX.  Importantly, however, it’s not the trading VIX, which surged 32% Friday, nor the primary trend VIX, which also recently turned up.  Both of those have been known this cycle to spike impressively higher one period, only to fizzle and return harmlessly lower the next.  What this chart shows is the monthly VIX.  When the monthly changes direction, it almost always brings important consequences.  As evidenced in the chart, VIX “crossovers” in either direction occurred only six times in 13 years.  Each turn led to a major reversal in the S&P.  The current upturn looks like number seven.

vix 26jan14

The other warning pattern is the primary trend yen chart below.  The upturn anticipated last month is fast becoming this month’s pox on stocks (and everything else risk-on), even if it ultimately traces out only an a-b-c counter-trend upturn.   As discussed many times the past thirty days, a rising yen undermines the hugely leveraged carry-trade, no matter which risk-on asset is carried.  And given the yen’s overwhelmingly bearish sentiment at year-end, investors were unprepared for any upturn, let alone a primary trend upturn, hence last week’s aggressive un-wind.  Additional pain seems likely.  For that reason, bearish pattern read aside, investors should be on the alert this week for a response from Mr. Abe, one probably involving his QE fire hose.  We’ll see.

xjy 26jan14

But carry-trade un-wind isn’t the only factor responsible for the U.S. correction.  Earnings misses, declining share buybacks, GDP forecast revisions and continued deterioration in jobs and income trends all helped push confidence and prices down.  Possibly the clearest reflection of eroding economic confidence can be seen in the rotation out of retail stocks.  And it’s never a good sign when the sector responsible for 70% of GDP ranks among the worst performers in the stock market.

xrt 26jan14

Perceptions in the bond market have also changed for the worse.  And the complete about-face in bond prices in the past five weeks signals borderline dramatic change.  Nothing less could convert 95% bearishness bond traders to a trend line breakout in Treasury bonds, with a further neckline breakout pending.

tlt 26jan14

In the face of nearly unanimous expectations that the 10-year Treasury yield would continue to push past its 3.04% high, yields actually reversed early in January, and now have retraced 62% of Q4’s fifth wave upturn.  While a short-term rebound should follow, either from Friday’s close at 2.73% or a possible test of 2.69%, the trend direction in rates for the moment remains down.  Ultimately I expect new correction lows.  It’s even possible, with the economy faltering and earnings falling short of expectations, the TNX could re-test its October’s low at 2.49%.  That said, once rates complete this correction, their long-term upturn should resume.  The curious thing is that the rise will have little to do with a strengthening economy.

tnx 26jan14

My review shows the vast majority of global markets in downside synch.  And in the U.S., even the most stalwart, bellwether industry sectors show primary up-trend cracks.  Bottom line, the technical damage these past few weeks, whether the result of correction, recession or carry-trade un-wind, might be more significant than the lost market value.  That is, from its look and feel, if this really is just a correction, the inevitable rebound will warrant close attention.  While it could presage additional highs, it also could segue into another correction, possibly a deeper correction.

Which makes the following chart of the Shanghai Stock Exchange Index all the more curious.  Belying all the bad financial news in China, the SSEC is building a nice bottom and could turn up soon, if it hasn’t already.  But in reaction to what?  Growth estimates are falling, as demand-challenged trading partners continue to starve China’s export machine; production facilities are shuttering, as weakened demand adds to the problem of idle capacity; and the country’s financial crisis is only deepening.  Shadow banking is a tinderbox, depositors have been denied access to their funds, and overnight repo rates stabilize only when the PBOC pours liquidity into the system.  Bottom line, the backdrop in China is not good. Yet that chart below shows real promise.  That alerts me to approaching government intervention.

ssec 26jan14

Others must sense the same thing, given the early upturn in the pattern.  And that previously was signaled by the SSEC’s oversold low and its divergent histogram.  But the pattern needs further incubation, first, to build a better trading base and, second, to provide the developing bottom in the weekly SSEC chart time to catch up.  That raises the possibility of a trading re-test.  Still, the question remains, what intervention haven’t Chinese officials already tried to quell concern in shadow banking, let alone kick-start more than two quarters worth of “growth?”

ssec 26jan14 2

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Interest rate action confirms correction call, and increases risk it extends to primary trend

 

tnxd 16jan14

tnxw 16jan14

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Rate pullback confirmed

Rate pullback confirmed, that it might reach primary trend proportions evidenced. Recently revised GDP forecasts subject to further revision?

tnxd 10jan14

tnxw 10jan14

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It was almost as if bond traders had anticipated today’s ISM order contraction, the first since 2009

tnxd 06jan14

tnxw 06jan14

tnxmonthly 06jan14

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TYX/TNX poised to turn higher

With the TYX/TNX poised to turn higher, there is additional evidence to suggest that rates are ready to resume their correction

tyx-tnx 10dec13

tyx1 10dec13

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TNX & Taper Talk

Did the TNX, in fact, top Friday (medium-term), in the face of jobs “strength” AND taper talk?tnxd 10dec13

tnxw 10dec13

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Resumption of the TNX correction seemingly close

Empty taper talk-induced rebound in rates short-lived, resumption of the TNX correction seemingly close

tnxd 25nov13

tnxw 25nov13

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Treasuries – Primary trend correction in the TNX set to resume

Counter-trend rate rebound complete, primary trend correction in the TNX set to resume; tapering concern unwarranted again

tnxw 18nov19

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Copper & Treasuries – Mixed Messages?

The copper price in the foreground and the 10-year Treasury rate in the background aren’t sending the same message…or are they?cu 13nov13

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Treasuries: long-term rate upturn still the call

Rate rebound extended, but correction scenario delayed, not reversed; long-term upturn also still the call

tnxd 08nov13

tnxw 08nov13

tnxww 08nov13

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Higher probability that rate rebound is short-term

Higher probability that rate rebound is a short-term, oversold bounce from first level support than it is an important upturn from a credible bottom

tnxd 01nov13

tnxw 01nov13

tnxm2 01nov13

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Treasuries Update

The potential depth of the correction in the 10-year Treasury yield reflects either surprising economic weakness or a change in the terms of QE, but it will end, and it will re-test resistance at 3.0%

tnxw 27oct13

tnxm102713

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Treasuries – Rate roadmap

First leg down in 10-year T-bond rate decline over. Brief bounce to be followed by completion of the correction, then resumption of rate’s long-term upturn

tnx120 05oct13

tnxd 05oct13

tnxm3.5

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Treasuries

First leg down in rates arrived on cue, but interim bounce looms prior to correction completion; primary trend remains higher, however

tnxd 01oct13

tnxw 01oct13

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Deeper correction due in the 30-year yield than in the 5- and 10-year…even if a temporary tapering spike comes first

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Prospects of an ITB trade improving with related prospects of rate relief (likely due to less economic “strength,” not more)

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Bond Outlook

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