Let's Talk About Bonds, Inflation, and New Highs
A broad look across three asset classes today.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Should we begin with bonds? It’s been a nice rally these last few days but we aren’t even back to where we started a week ago. I’m not giving up on my view that rates should back off; I am just being honest.
I continue to view this action in TLT (bonds) as bottoming. I would very much like to see TLT get up and over 93 and get to 94/95. If it can power over that downtrend line (black) then I think it can map out as I have drawn in blue.
I know there are many who are in the camp that say inflation is going to return. Hey, I lived through the 1970s, and I waited on gas lines, and I know the chart that shows how inflation came in waves (it did), but let’s look at what’s in front of us now. The CRB Index (Commodities) shows a series of lower highs since April. I call this one giant trading range for now. What if the CRB spends the next month or so just chopping about between those two blue lines? A reminder that is heavily weighted to energy.
Notice that the big high in the CRB in the spring was commensurate with the low in the TLT and the high in TLT in September coordinated with the low in the CRB. At some point they won’t swing together so perfectly but for now, that’s what we’ve got.
I can see if the CRB spends a few months chopping about and not breaking under that 277 area it does set itself up to breakout over that top blue line. But that doesn’t feel imminent.
A reminder that the bonds don’t trade Monday as they observe Veteran’s Day.
Away from that, we are not yet overbought. My estimation is that we will get there later this week. A pullback Monday would likely be bought for another push up. I expect the Overbought/Oversold Oscillator to peak close to the top of the page.
The majority of stocks did a lot of gapping up on Wednesday and sitting the rest of the week which is why the new highs have tailed off quite a bit. A good test is if we back off Monday and then rally again to see if we can get more new highs than last week.
Action such as we had on Friday did nothing to change sentiment. I mean when a mere 48% of the volume is on the upside despite a 20+ point move in the S&P do you really expect folks to get more bullish?
We see it in the fact that despite the rise in the indexes, the Daily Sentiment Index (DSI) did not budge from Thursday’s readings. The S&P remains at 82 with Nasdaq at 83 and the VIX at 10. A pullback Monday should shift those lower and another rally into the rest of the week could push the indexes over 85 and the VIX to single digits.
