alice

NFTRH; 2 Sectors Keying Off Interest Rates

As everybody knows, long-term interest rates have been rising since the beginning of September, well before the FOMC supposedly surprised markets with a lean to a hawkish stance (for December) and an affirmation of its plan to slowly reduce the $Trillions in assets from its balance sheet. We’d already seen this potential in the bond sentiment and CoT data.

tnx

If the market does the logical thing, it would probably go with the hawkish Fed story and continue to raise interest rates. If however, a spanner gets thrown in the works of the economic growth/inflation story yields could drop back. Notably, ISM, Factory orders and Non-Farm Payrolls data come in next week.

Bonds were still contrarian bearish (yields bullish) at last reading on Sept. 19, a day before the FOMC release, with the public over bullish and Commercial traders net short to an extreme. But it is likely that a lot of dumb money got off its over bullish Treasury bonds stance after FOMC.

Anyway, let’s review the multi-panel Biotech chart. This sector has consolidated while yields spiked, but the consolidation is still within a bull trend.

The flag on IBB looks fine as of now, but the ETF could test 320 or lower in a normal pullback. The warning area is a loss of 300 and the SMA 200, and a lower low to the August low. I’d likely not ride that, but if interest rates were to top out short-term, I’d give this one a pretty good leash (all other things being equal).

Of particular note on the stocks, we see Biogen declining for a test of the SMA 50 and a support area. Wiggle room for a quick poke down to around 290 can be allowed during this test. We also noted that AMGN targets 210 based on the breakout above 180, which it is gently settling toward testing. Pending interest rates, I am watching AMGN, BIIB and IBB itself (which I hold, but could add to).

ibb

As for the Financials, let’s take a look at the sector chart first. These items have run in unison with the spike in yields in September. If long-term yields continue to rise this should continue indefinitely as long as the stock market and economy are stable.

xlf

The items I currently hold are the two most often highlighted in the NFTRH+ Notes segment, GS and COF. Daily GS is breaking out to new recovery highs. A reasonable target from this pattern would be around 249.

gs

A weekly chart (as we use in the weekly report) works better for illustrating COF. The stock already hit the measured target of 92 off of the ‘W’ bottom that formed in 2016 but in dropping to support and holding for the 2nd time it may be forming an odd looking Handle to a bullish Cup. Or is that another ‘W’? If this continues bullish and rises above 88 the target would be for a marginal new high around 97 or 98.

cof

I am not trying to make recommendations, especially since I am personally unclear about yields near-term, but I think it can’t hurt to talk about yields and do up a few charts with sensitivity to them.

Markets don’t usually proceed logically on an every day or day to day basis so both items (Financials and Biotech) could go bullish or bearish with one being out of whack with yields for a while. A bullish market could lift many boats, but some more than others. Conversely, a bearish market can do its thing in reverse. Both despite what interest rates may be doing.

Finally, in a risky market gains seem to come quickly as desperate money chases. So by definition I am in risk management mode, playing this thing as best I can while staying balanced and ready to greatly increase cash at any time as well. Anything’s for sale, especially that which has increased nicely or is a candidate for a limited loss and that which may be out of whack with macro signals (i.e. like the next move in interest rates).

See you Sunday with NFTRH 467.