Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelertoing Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Are Bonds Hinting the Rally in Stocks Will Continue?

Stock-Markets / Stock Markets 2010 Apr 08, 2010 - 07:11 PM GMT

By: Hans_Wagner


Best Financial Markets Analysis ArticleStocks and bonds typically move in opposite directions. When bond prices go down stock prices go up. This is one of the reasons many financial advisors recommend that investors hold bonds and stocks, as they provide balance to their portfolio.

Portfolio managers will reduce their holdings of bonds when they believe interest rates will rise. Rising interest rates cause the value of existing bonds to fall. Some bond investors will adjust the term of their bond portfolio to try to minimize the negative affect of rising interest rates. Other will move some of their money to other asset classes that offer a better return such as stocks. Selling pressure on bonds will contribute to the downward pressure on bond prices.

While the stock market receives the most attention, the bond market is substantially larger. The global bond market is approximately $82.2 trillion, while the global stock market is worth $36.6 trillion. Any movement of cash from the bond market to the stock market will have a significant affect on stock prices. When bond prices fall, it encourages investors to move some of their money from bonds to stocks helping to fuel the rally. Can we use the alignment of bond prices and stock prices to help us adjust our portfolios to benefit from the rally in each?

Bond Rally Over

The rally in bond prices looks to be over. The eleven-year chart of the 10-year treasure bond prices shows the relationship of bond prices to stock prices. (Eleven years is all the further back the data is available for the 10-year Treasuries). In the middle of 2003, bond prices turned down. This aligns with the beginning of the rally in the stock market. The drop in bond prices ended a couple of months before the rally ended and we entered a new bear market. As the 10-year Treasury prices rallied, the market plunged. Then at the beginning of 2009, the rally in bonds stopped as the price of the 10-year Treasury turned down. This down trend corresponds with the rally in the stock market.

While there might be a minor support level at the 115 area on the 10-year Treasury, the downtrend in bond prices has much more room to fall. As long as this downtrend in bond prices continues, the rally in the stock market will continue. The RSI, MACD, and Slow Stochastic indicators confirm the downtrend in 10-year Treasuries. The also show the trend should continue for many more months. However, we might get a brief rebound in bond prices to the downtrend line.

Looking more closely at the 6-month daily chart of the 10-year Treasury bond prices, we can see the precipitous drop in the price that began in the last week of August 2010. A poor reception of a Treasury bond auction that week caused the fall of the 10-year Treasury along with other maturities. Almost each week we will see new Treasury bond auctions as the government must fund its large annual deficit.

With support at the 115 area, we might see a brief rally at this point back to the 117.5 area, a place that closely correlates with the downtrend on the monthly chart. If we get such a rally, it will be a negative for stocks, indicating we might pull back in the market.

Earnings Season is upon Us

Earnings season is upon us. Analysts are expecting 36% growth in earnings from 2009’s first quarter. For the market to rally, we will need to see companies beat these expectations. It should be no coincidence the last two market pullbacks of 5 to 10 percent occurred early in the earnings season. We might see the same this time around as many sectors are pricing in big profit surges that have the potential to disappoint. However, 2009 quarter was one of the worse earnings quarters making the comparison easier than normal.

Thompson expects the profit of financial companies to jump 193%, materials to leap 178% and consumer discretionary to rise 114%. This could be setting up investors for a disappointment, especially since so many people will be looking for earnings to exceed expectations. While these are huge numbers, earnings growth in the first quarter of 2009 was non-existent. It might not be that hard to meet expectations from such a low level.

The Bottom Line

Longer term the downtrend in bond prices is telling us to expect the market will trend up throughout 2010. As long as the downtrend in 10-year Treasuries continues, we can feel comfortable the up trend in stocks will continue.

Like any up trend, there will be pullbacks that offer new buying opportunities. We might be on the cusp of one such pull back with an overbought market and we are entering earnings season. Use any pull back to add to long positions form your stock watch list. It looks like the market will climb this wall of worry for longer than many think.

By Hans Wagner

My Name is Hans Wagner and as a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market at

Copyright © 2010 Hans Wagner

If you wish to learn more on evaluating the market cycles, I suggest you read:

Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles by Joe Ellis is an excellent book on how to predict macro moves of the market.

Unexpected Returns: Understanding Secular Stock Market Cycles by Ed Easterling.  One of the best, easy-to-read, study of stock market cycles of which I know.

The Disciplined Trader: Developing Winning Attitudes by Mark Douglas.  Controlling ones attitudes and emotions are crucial if you are to be a successful trader.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules