The market closed flat again while bonds once again rallied to levels last seen was SPY was near its lows. Since the June lows stocks have rallied 8% to its highs and is now sitting 6% off its lows. Yet bonds are now at the exact same level as its high from June. Most recently bonds rallied/yields sold off as TNX broke below support 15.60. This was just a few days before the market sold off on 7/10, finally stopping at 132.60. This potential was noted here.
Bonds have continued to rally even as the market has rallied and according to your Econ101 book this shouldn’t be happening. Bonds and stocks move opposite. The question is who is right? And by how much will they be right? Only the market knows this but lets look at this from a technical perspective.
Here is a look at TLT, the 20 year ETF, notice how it hit its highs from June today and pulled back.
Bullish Factors Market: Potential Double Bottom at 14.40 and reversal of yields, TNX completed its broken range price target movement downward movement of yields stop, strong flight to safety shows crowded bearish trade.
Bearish Factors Market: Bonds lead the market, nearing support at 14.40 a break of 14.40 sends bonds higher, the smart money anticipates more downward pressure on the market and a rally in bonds.
This doesn’t help that much although there is a slight edge to the bulls with the double bottom forming on the 10 year and a double top on TLT. It is important to keep and eye on the market’s support and resistance levels though to get a better sense of the market.
SPY and Yields: SPY below 134.85 and a 10 year near or below 14.40 bearish for the market. SPY above 136.27 and TNX near or above 14.40 is bullish for the market.
Feel free to post your thoughts on what bonds are saying and who is right.