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
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Higher U.S. Treasury Bond Yields, Lower Equities?

Interest-Rates / US Bonds Mar 26, 2010 - 08:38 AM GMT

By: Guy_Lerner

Interest-Rates

Best Financial Markets Analysis ArticleFor the longest while, my mind set has been to expect higher yields accompanied by higher equity prices. After all, wouldn't higher yields be a sign that the economy is expanding and on the track to recovery? Or to put the relationship between bonds and equity prices in another light: if the equity markets would ever sell off, wouldn't bonds catch a bid as there is a flight to safety? But the technicals have me rethinking these relationships. Is it possible that we could have higher yields and lower equities?


Let's start by giving you some background. I have been bullish on Treasury bonds for some time. I was betting with the "smart money" and against the "dumb money", and after much consternation, I felt this was the correct play. I had identified key support levels, and although Treasury bonds could not breakout higher, support was holding. I was becoming increasingly bearish on equities, so I thought that it was only a matter of time before bonds caught a bid. Equities would fall and bonds would move higher at they are seen as a safe haven.

But I don't think it is going to work out that way. I still remain bearish on equities, but it is becoming increasingly difficult to remain bullish on bonds. In fact, the technicals now have me bearish on bonds.

Figure 1 is a weekly chart of the 30 year Treasury Bond Interest Rate (symbol: $TYX.X). Key pivot points are identified with the yellow dots, and these are areas of support and resistance. Negative divergence bars, which tend to act as inflection points as well, are the pink labeled price bars. We note that there is a cluster of 2 negative divergence bars (inside the gray oval). It appears that the 30 year yield will close over 3 key pivots at 46.91 and above the cluster of negative divergence bars. This is very bullish for higher yields, and in all likelihood, this could be strong move higher - think short covering with closes above negative divergence bars -that could see yields on the 30 year Treasury eventually reach 5.282%.

Figure 1. $TYX.X/ weekly

Let's look at this from another perspective. Figure 2 is a weekly chart of the i-Shares Lehman 20 + Year Treasury Bond Fund (symbol: TLT). This is a bond fund that moves opposite to yields. Key pivot points are in yellow; the pink labeled price bars are positive divergence bars. The important area of support is formed by the key pivot point at 89.38 and the low of the positive divergence bar (see price bar with red arrows) at 89.19. A weekly close below these levels, which seems likely, should lead to a much lower TLT. Once again, closes above or below divergence bars tend to lead to accelerated price moves.

Figure 2. TLT/ weekly

For now, TLT has breached support rather convincingly. However, the fake out or reversal needs to be considered. A weekly close back above the high of the positive divergence at 90.65 would be a sign that TLT is going higher (yields lower).

Now let's take a look at the daily chart for TLT. See figure 3. Key pivot points are in red, and today's closing price is below 3 consecutive pivots, and this is bearish. Price has yet to close below the lowest key pivot at 88.64, but this is a couple of cents away.

Figure 3. TLT/ daily

How about the daily chart for Ultra Short Lehman 20 plus Year Fund (symbol: TBT). This is a 2x leverage product that tracks yields or is inverse to TLT. Key pivot points are in red, and a close above 3 key pivots is bullish; TBT is now breaking out and has a price target of $55.

Figure 4. TBT/ daily

Let's address several things before wrapping this up.

Could this be a fakeout? Absolutely. TBT and TLT have been very tricky. Just last week I wrote that TLT was my best looking position - it looked poised to move meaningfully higher. So we have our points where I will be wrong again - if I am wrong again!

Why are yields moving higher? Most would agree that deflation, not inflation, is in our immediate future. How about higher yields and better economic growth? The data doesn't really support it. My belief is that is has to do with debt issuance and supply and demand. I believe Moody's downgrade of Portugal's debt reminded the markets that the coming year is going to filled with a lot of sovereign debt offerings. Who is going to buy that debt? Which debt is going to be the most attractive? Higher yields seems inevitable.

Lastly, does this mean equities will rise? After all, aren't rising yields a sign of economic expansion? In this instance, this is not the case; this is all about supply and demand. Furthermore, extreme bullish sentiment plus yield pressures is a bad combination for equities. See "Danger, Danger Will Robinson".

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2010 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Guy Lerner Archive

© 2005-2019 http://www.MarketOracle.co.uk - 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