Yesterday was one of the darkest days in US history, and yet the stock market managed to close higher. How could this be?
Well, I think it's as simple as money was flowing out of bonds and into stocks.
US Treasuries have been topping for months now. All while the rest of the market, like industrial metals, emerging markets, and stocks and commodities in general, have been implying higher interest rates. Yet bonds have refused to roll over, until yesterday.
Below is the daily chart of the 30yr. T-Bond. The close below 170^02 completed the top, and set an initial target around 157^18.
The 10yr T-Note also began to break down yesterday. It did not mange to close below the June 2020 low, but it did complete an 8-week descending triangle that could act as a launching pattern. A close this week below 137^060 would complete the possible H&S Top, and set a target around 134^020.
I view these as great trade set-ups with very low ADX readings, but that's not the big takeaway here. Yesterday, bonds finally fell into place with the rest of the intermarket picture, and it's incredibly bullish for stocks and commodities.
We went from a market environment that favored buying stocks and commodities to a market environment that favors buying stocks and commodities, as well as selling bonds.
That's huge! The money that was sitting in bonds has to go somewhere, and a weakening dollar isn't an option when stocks and commodities are a massive attraction on a global scale.
I know the current state of the union may appear fragile and the news only seems to get worse, but I don't turn on CNN or read The New York Times for information regarding the market. Similarly, I don't study price action in hopes of understanding geopolitics or the news of the day.
The goal is to keep it simple. Study something definitive, like price action, and let the market tell us where the market is headed.
Right now the market is telling us we are in an environment that rewards those who sell bonds, and chose to buy stocks and commodities.
Thanks for reading! If you have any questions or comments, please feel free to contact me at ianculley@culleycharts.com
DISCLAIMER: All information and opinions expressed by Culley Charts are strictly that, and should not be construed as investment advice. Market participation comes with inherent risk, and the responsibility of managing this risk lies solely with each individual investor.
Comments