The following report was available to our premium subscribers earlier this week……
Is There Competition For Stocks Ahead?
OVERVIEW: I wasn’t planning on any type of article or review tonight however, I have been noticing a possible breakdown in bonds and thought I should pass this perspective along. We don’t get involved much in the interest rate scenario here as far as our trading is concerned, but the fact of the matter is that interest rates can have an effect on stock prices, so it is in our best interest as traders to be aware of such factors. It is very apparent the Federal Reserve has been on a slow but steady diet of raising interest rates and now Treasury Bond rates may be on the rise as well. Rising interest rate environments can ultimately raise enough competition to derail stock prices so, when I came across these charts I thought I would pass them along.
IEF- This is the iShares Barclays 7-10 year treasury bond fund weekly chart. We can see going back to 2010 a bull market commenced in bonds. This steady uptrend that has carried for the last seven years pushing interest rates lower and lower (remember bond prices up, interest rates down and vice/versa) has finally come to an end. Price broke trend line support in late 2016 giving us the first hint a change in character may be in the offing. During 2017 prices drifted sideway to higher before accelerating to the downside over the last month and has now broken through a key level support just this week.
TLT- This is the weekly chart of the longer maturity going out 20+ years. Here we can see a similar trend line that was established back in early 2011. This up trending support line has held on several occasion over the last seven years but is being challenge once again and in fact, closed todays session virtually on that line. I don’t have a crystal ball, but my guess at this point would be an eventual break of this line sooner than later.
SUMMARY: We ultimately don’t know where interest rates are headed over the longer term, but we do need to pay attention to this metric. Everything goes in cycles, sometimes much longer than we think they can, but there is a time when market dynamics change. The stock market has been good and interest rates have been low for an extended period of time and as traders we must make ourselves aware of possible changes brewing underneath the surface.
Dow sees worst day in two years as bond yields jump
NEW YORK (Reuters) – Worries about the impact of a tightening job market on the prospects for inflation and a surge in bond yields sent investors fleeing equities on Friday, with the Dow Jones Industrials Average swooning almost 666 points, for its biggest daily percentage loss in 20 months.
It was the biggest daily point fall in the Dow since December 2008 during the financial crisis.
With Friday’s rout, Wall Street’s three major indexes logged their biggest weekly losses in two years, after closing at record highs the previous week. The S&P 500 and Dow saw their worst weeks since early January 2016 while Nasdaq had its worst week since early Feb 2016.
“People are starting to really get increasingly uncomfortable with the rapid rise in interest rates that we have seen and the uncertainty of how that is actually going to start to play out relative to competition for stocks,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.