10-Year Treasury yields rallied sharply on Friday, breaking the new resistance level at 1.70%. Follow-through above 1.80% would confirm the decline is over, signaling another test of resistance at 2.00%/2.10%.
On the monthly chart we can see that breakout above resistance at 2.00%/2.10% would signal a primary up-trend and possible test of 4.00% in the next few years. Only a breakout above 4.00%, however, would end the secular bear-trend of the last three decades.
Last week Treasury yields were falling while stocks were rising. That changed on Friday, with the S&P 500 breaking through resistance at 1600, suggesting an advance to 1650. The index has exceeded its target of 1600* and seems overdue for a correction, but bullish sentiment is rising and the market can stay irrational longer than you can stay solvent (attributed to John Maynard Keynes). Oscillation above zero on 13-week Twiggs Money Flow indicates a healthy primary up-trend. A June quarter-end below 1500 now looks unlikely, but would present a long-term bear signal.
* Target calculation: 1475 + ( 1475 – 1350 ) = 1600
Bellwether transport stock Fedex is testing support at $90. Respect of the rising trendline would signal the primary up-trend is intact. Recovery above $100 would confirm.
Structural flaws in the US economy have not been addressed and uncertainty remains high, despite low values on the VIX. House prices are rising, largely due to institutional buying, but the overhang of shadow inventory is expected to delay recovery of housing construction. Mamta Badkar at Business Insider reports:
Shadow inventory fell 18 per cent year-over-year in January to 2.2 million units, according to CoreLogic’s latest report. This represents nine months’ supply.
…..down 28 per cent from its 2010 peak of 3 million units.
As traders we have to follow the trend, but in times like this it is important to remain vigilant.
Dear Colin,
here,s why the dow jones theory is utter garbarge
http://www.traderplanet.com/commentaries/view/163253-the-dow-theory-is-useless-today-here-s-why-djia/
Traderplanet.com : If you intelligently believed Dow Theory is ‘garbage ‘ , then you should remain silent , simply then trading contrary to their signals. Does your approach of shouting assist you in profiteering in some other more profitable way ?
Thanks Graham. Never thought of it like that: “If you don’t agree, take the opposite side of the trade.”
Wolfgang, It is clear that the author is criticizing the theory as proposed by Charles Dow more than a century ago. I agree with most of the comments, but they are about fifty years too late. Most analysts were adjusting for these shortfalls when I was still in diapers.
i like this kind of longer term analysis. it puts a lot of noise into perspective. however, i think you mean a breakout in yield may point to an end of a secular bear trend in the last three years, rather than decades?
J and bear market in rates : Twiggs is correct – refer longer term Treasury yield , especialy – in relation to duration of decline. Charts available freely of 30 year Treasury yields.
Secular trends are a series of primary (bull & bear) trends which may span several decades. The current bear trend (in yields) has lasted since the early 1980s.
Other side of trade / disagreement and silence. It’s the silence ( that is , not ‘alerting’ about deficiencies, as ‘traderplanet’ does here ) thats the ‘intelligent ‘ belief issue ; you want the followers of Dow Theory to falsely believe in th
eir theory. Hence my final sentence – ‘Does your approach of shouting assist you (traderplanet) in profiteering in a more profitable way’.
supposed ‘garbage’ – this results
in one’s profitable opposite trade. Hence my statement