The following is one of a wide range of analytical topics covered in NFTRH 293′s 35 pages this week, much of which is straight ahead technical analysis. But the T Bond market is usually central to an overall macro view at any given time. This segment is not meant to provide actionable direction (other than perhaps to prepare for a potential rise in T bonds yields), it is meant to dig into the mechanics beneath the financial markets in an effort to have people consider that there is much more going on with markets than simple nominal TA or conventional fundamental analysis (PE ratios, growth metrics, reported economic data, etc.) can account for.
US Treasury Bonds
10 & 30yr yields have declined to support as NFTRH projected
Yields on long-term Treasuries have continued to decline in line with our view that was contrary the ‘Great Rotation’ (out of bonds) hype. The [30-year] especially is now close to support and the next play seems like it could be rising yields and declining T bonds.
Our long-term ‘Continuum’ chart; yields approach support
The 30-year ‘Continuum’ view above makes the simple case that players had to be put offside believing in the ‘Great Rotation’ at 4% yields. The nearly half-year decline since then has now satisfied the chart as yields have come to our 3.1% to 3.2% target range, where there is support.
“The real issue is that the Fed has expanded its tool kit so dramatically…” –Andrew Huszar
In line with our theme of outlandish and immoral (in my opinion) Fed policy a former Fed official calls QE a backdoor bailout of Wall Street, which anyone with two functioning brain cells knows to be the case. The Andrew Huszar Op/Ed (Wall Street Journal) Confessions of a Quantitative Easer is I suppose old news, but it illustrates what we have been hammering on for so long now; that Fed policy is serving to pump the stock market and pump up the wallets of asset owners.
QE gets about 10 times the notoriety of ZIRP, but I’ll still maintain that it is this evil tool in the Fed’s ‘tool kit’ that is the main and continuing blight on the system as it not only rewards asset owners and speculators, but punishes those least able to speculate due to limited funds.
Please review this chart again and behold the rigged market. Anyone arguing that the bull market in US stocks is normal is being intellectually dishonest. Yet like agent Mulder I want to believe in the healthy bull story*, but I have to believe the data that has drawn the lines on the chart above.
Many people would consider a drop in the S&P 500 to the 1550-1600 area to be a bad thing. But if the bull is real, and if a secular bull market truly has been created out of manipulation of the T bond market (QE’s bond buying and ZIRP’s 0% rates) then a pullback to test that zone would be normal, would it not? It would feel bad but in reality a successful test of the big breakout would launch the grand new bull. SPX has to drop down to test support sooner or later, doesn’t it?
Well no, it doesn’t because the other side of the coin in the post’s title is ‘When Good is Bad’, meaning that an upside blow off in markets – if that is what is fomenting – would be very bad, as in ‘Silver 2011′ bad, for the stock market with a successful test of support unlikely. That is because a manic blow off would be a terminal event.
Guest Post by Tom McClellan
May 22, 2014
Much has been written about using trading volume in technical analysis, and if you ever want a good primer on this, you should check out Buff Dormeier’s book Investing With Volume Analysis. But what a lot of traders do not understand is that the rules are different for evaluating volume in ETFs.
I held short against the Financials and Semiconductors, and these positions were red today. Calls on the VIX were flat. The bull stuff did well and made it a positive day, allowing me to give it another day or two for the bear case.
SMH is still undecided, which means the SOX is still undecided as to the title’s question. The decision for this sector that led the post 2012 stock market comes with a break up and out of the red line or a failure of the green one.
The QQQ stabbed the resistance parameter today and stops out a would-be bear trade right there or if it does not fail immediately.
It is a mixed messages market. With all the bearish indicators, we have had some fairly severe downside in several momentum related indexes. This begs the question ‘was that it?’ with regard to ‘the correction’?
We have talked about what is negative for the US stock market. From the signal in the banks vs. S&P 500 to a young uptrend in long-term T bonds vs. the S&P 500. Here is the 2011-2014 market leading BKX-SPX in breakdown mode.
Throw in a bearish divergence in the Equity Put/Call ratio, an elevated Gold-Silver ratio right at resistance and Junk bond vs. Treasury/Investment Grade and the signs of a bearish market are not only there, they have manifested in some pretty good downside in the growth and momentum areas.
But aside from the Dow and Tranny already noted, there are other things that bears should pay attention to, starting as we often do with the Semiconductor index.
Who is surprised? Anyone? Bueller? Dow & SPX; Now Would be the Time. Here’s the updated chart with the venerable headliners bouncing as we suspected they would.
Here is a less pleasant chart, showing the Bank index continuing to burrow south vs. the SPX. In updating the chart I had to move the red arrow lower still.
Okay, so the Dow and SPX have lost multiple leaders. They’ve still got the Transports and I suppose we are going to get the ultimate litmus test on whether or not Dow Theory should be taken seriously in the hyper information age or is in the realm of crusty old guys using slide rules, pencils and paper . If this lonely bull indicator (along with the SOX hanging on above major support) wins out over the gathering crowd of negative ones, I guess it will have mattered, eh?
Anyway, the Dow and S&P 500 were always going to bounce at the 50 day averages. It’s what comes next that is important.
We noted last weekend in NFTRH that it was probably not a good thing that the VIX’s tech-related cousin, the Vixen was dropping in lockstep with the expected bounce in the Nasdaq 100. Here’s the weekly chart.
Much like you want to see a stubborn refusal to accept risk at a bottom, you want to see them buying back risk on a bounce at a top. Well, you want to if you are short, which I am.
Here is the weekly view of the index to which the Vixen is assigned…