04
Nov
When bonds sell off (yields go up), stocks may go up or down. When bonds rally (and yields go down), it is UNUSUAL for stocks to RALLY. It can happen, but it’s unusual. It happened today. Here is an intraday chart comparing the S&P and the 10-year treasury yield (TNX).
As you can see in the following relationship, when TNX is down, S&P follows it down on the same day or with a lag of a day or two. Again, when TNX is up, S&P can either be up or down.
In other words, when bonds and stocks stage a strong rally together (up about 3.5%), like today, one of them has to give. Usually bond players get it right.
I rest my case.
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November 4th, 2008 at 6:58 pm
I agree completely, when I saw the TNX/TYX dumping, I thought for sure we would see a selloff into the close. We almost did, but the bulls took over. It really threw me for a loop.
TLT had broken out of a trading range, and today pulled back in. If it moves back to 98-100 as it has been doing, that signalled further downside to me in the SPX. It has been in a 93-100 range for awhile.
However, these recent moves have really thrown me off. I have to study tonight and reevaluate what my plan is going forward.
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November 4th, 2008 at 7:03 pm
http://stockcharts.com/h-sc/ui?s=$TNX:SPY&p=D&yr=3&mn=0&dy=0&id=p40659784671
You still think there is a correlation? You are betting on a breakout. It is possible.
Also you are looking the 10yr note. If I sense your flight to risk argument, you need to look at the 3 month T-Bill.
http://stockcharts.com/h-sc/ui?s=BIL:SPY&p=D&yr=1&mn=0&dy=0&id=p91384463845
Well, no surprise it looks so much like the VIX or SDS or others. It is beginning to look like a possible HnS candidate, the pullback has killed the momentum. Sure we can get a bounce, my bias (intermediate term outlook - few weeks) is now bullish.
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November 4th, 2008 at 7:06 pm
http://stockcharts.com/h-sc/ui?s=$TNX:SPY&p=D&yr=3&mn=0&dy=0&id=p40659784671
is the first link
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November 4th, 2008 at 7:08 pm
Bah, the comment box is purging my dollar signs, You need to add a dollar ahead of TNX.
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November 5th, 2008 at 2:13 am
Yes,
TNX and SPY correlate whenever TNX is down. (not necessarily on the days TNX is up)
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November 4th, 2008 at 7:09 pm
Market comments from GS today.
COMMENTS
Recent rallies have been frenetic – based on the rush of a short squeeze – but today’s rally in US shares up 4% or bonds up 2 (yields off 17 bps) or commodities (oil up 10%, gold up nearly 5%) – was different. The rally today was a perfect storm for bonds, equities and commodities as the bearish sentiment drove positions – and the buyers were more methodical and measured. The US Treasury rally merits the most attention as it’s the most out of place given the other moves. Remember yesterday the market got the official news of $1 trn plus borrowing for the next 2Q in the US – a pace of borrowing that left many content to play the yield curve steepeners. Throw in the expectation of an equity bounce and you have a short market. The biggest story is that the MBS markets moved today – FNM,FRE debt saw a narrowing of spreads as money went into the market. The buyers strike may be over for mortgages thanks to hope of a new policy bent in Washington – call that the election rally – or because there is so much money on the sidelines that the easy spreads, effectively government guaranteed were the next place to find safe yields. The trading world is bifurcated into those that think the improvement in spreads will unfreeze this market enough to drive the real economy and those that think its too late. The data ahead will be bearish – the decisions ahead by central bankers bullish – and so it goes for a market confused and waiting for more information. The risk of trading in these environments is clear – that there are so many positions left on books frozen in illiquid markets that float to the top of sell lists given any sign of a thaw. So many expect that today’s perfect rally will reverse tomorrow or the next day or week. In the interim – the FX market is sending mixed signals. The emerging markets haven’t returned to their pre-pain levels. BRL 2.00 and MXN 12.00 stand out as big levels - Same in EUR at 1.3050 and JPY at 100. This is a market still unwilling to believe the buyers. There were four factors to wait for until you could believe in a rally: 1) the 3Q earnings – that is almost done and its as bad as was expected but not worse. 2) The US election – we are almost there – and most see a big turnout being a signal for a bigger mandate – unifying a country divided over the last 10 years. 3) Spreads improving. The LIBOR drop was significant and holds – the issue here is whether this is sustainable and sufficient at these levels. The USD relationship to LIBOR may be worth watching as its moving towards a spread against EURIBOR again rather than a pure USD panic buying. 4) Hedge fund redemptions. They don’t appear finished but frozen. As the banks and funds hold losing positions and they see better markets expect the natural correcting mechanism to kick in. This is the only block to the bulls. The last issue will be the one for 2009 – how deep and long is the recession. It’s clear that the data ahead will set that tone and be the real limit to this perfect rally in an imperfect world.
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November 4th, 2008 at 9:13 pm
Great.
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November 5th, 2008 at 1:20 am
where do you find this info?
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November 4th, 2008 at 9:45 pm
This is great website..you can daily emails for setups for short and longs.
http://www.retracementlevels.com
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