US Treasury Bonds/Yields
On May 20 we presented a case in NFTRH 500 that the bearish bond play (bullish yields) was done, at least temporarily, from a contrarian perspective.
That was written before I realized – thanks to an alert NFTRH subscriber – that Thursday, May 31 would be another Fed SOMA (or QT) day, as bonds are allowed to hit maturity.*
The day after this bond maturation yields again went up (bonds down) as the stock market shook off the media-manufactured fears that ostensibly started in Italy but actually were destined to crop up regardless in one place or another (there was a lot of trade war noise this week).
See this NFTRH Premium update, now unlocked to the public, as it was presented in-day and in real time to give perspective for subscribers (and myself) as the media were scaring the herds into risk ‘off’ behavior and the perceived safety of Treasury bonds.
The risk ‘off’ market backdrop put a lot of people off sides, just before yields sprang back (bonds declined) today.
And so, as yields went down this week and then popped back up a bit today, the Continuum ™ holds for now. I understand all the reasons, including the the bearish 3Gs (Gurus Gross & Gundlach) that bonds should go bearish and yields should rise. But I’ll remind you again that until the thing below that has held intact for decades is broken it is not… broken, Fed QT or no Fed QT.
US Stock Market
Here is the current version of the daily chart of the S&P 500 we used in the premium update linked above. You can see that SPX was driven down to a test of the area we had laid out as key support in another update the day before the pullback began. We reviewed the key level ahead of time so that we could keep rational market orientations instead of running around like media-slaughtered chickens with our heads cut off amid any coming volatility.
Anyway, at 1:50 Eastern Time on Friday SPX has thus far held the convergence of the lateral support (green shaded area), the SMA 50 (blue line) and the green dashed trend line. What’s more, barring an in-day reversal it is making good progress toward what is still the favored near-term view, which is a test of the 2018 highs. If said test comes about I have a clear favorite subsequent outcome, subject to bias-free revision as may be needed. But for now, things are on track to preferred plans after a funky week in the bond market and a media-stoked flight to risk ‘off’ behavior that prompted a support test by SPX.
We are now back to a neutral stance on bonds and yields. Meanwhile, the stock market rally is still in effect after a rocky week, assuming it can hold firm into today’s close. Beyond the near-term rally things promise to take some dramatic turns, both bearish and later, bullish again. The first part of that statement is pretty firm; it could get dramatic this summer. The second part is pure projection (bullish to bearish to bullish again) at this point. But the narrative we are currently successfully working on today was once a projection as well. You’ve got to be able to look ahead and map out plans, eh?
* I had previously and erroneously noted this as selling. It’s a similar effect where QT is concerned, but different mechanics.
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