The chart of the month (below) compares the 10-year U.S. Treasury yield to its 12-month ROC. This oscillator is like a pendulum of a clock as it is continually swinging between an overstretched overbought +25% reading to a -25% oversold one. The arrows demonstrate that once it reaches -25% and then reverses, odds suggest that the yield is headed higher. A rise for yields would lead to a drop in bond prices as the two series move inversely. We don’t know where the low in the ROC will develop because its trajectory is still downward. However, what we do know, is that when it does turn, there will be very high probability that the next primary bull market for yields (bear market in bond prices) will already be underway. That’s an important piece of information to have!
Bond Pendulum Set to Swing Yields Higher
Source: Martin Pring’s InterMarket Review
Could we be at a key reversal point? In the chart below, the iShares 20-Year Trust (U.S. Bond ETF) experienced a key reversal on August 7, 2019. A key reversal develops after a sharp rally as buyers become exhausted. Consequently, buyers are very in much control coming into that session, as they cause the price to gap up at the opening. By the end of the session, though, sellers hold sway, as the price closes close to where it closed the previous day. High volume accentuates such action, as many traders go home trapped at higher prices. These key reversals are a rare phenomenon, but, when they develop, they often occur at major turning points. If bonds and stocks continue to move in opposite directions, that should be bullish for stocks. Stay tuned!
Disclaimer: The views expressed herein represent the opinions of the Investment Advisor, are provided for informational purposes only and are not intended as investment advice or to predict or depict the performance of any investment. These views are presented as of the date hereof and are subject to change based on subsequent developments. Neither the Investment Advisor, nor any person connected with it, accepts any liability arising from the use of this information. Recipients of the information contained herein should exercise due care and caution prior to making any decision or acting or omitting to act on the basis of the information contained herein.
Disclaimer: Pring Turner is a Financial Advisor headquartered in Walnut Creek CA, and is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. The views represented herein are Pring Turner’s own and all information is obtained from sources believed to be accurate and reliable. This information should not be considered a solicitation or offer to provide any service in any jurisdiction where it would be unlawful to do so. All indices are unmanaged and are not available for direct investment. Past performance does not guarantee future results.
Articles filed under Martin Pring's Technical Corner
May 12, 2022 - In March of last year, I wrote an article entitled “Timing the End of the Tech and Bitcoin Bubbles”. The conclusion for Bitcoin was that it was indeed in a bubble but that there was insufficient technical evidence at the... Continue Reading
March 21, 2022 - In October 2021, we made the case for a new secular commodity bull market and concluded that this environment would likely spill back into the economy and stock market. That process is already underway, as the NASDAQ Composite was recently... Continue Reading
October 18, 2021 - Aging demographics, technological innovation and an ever -expanding debt overhang are three reasons why inflation has been largely kept under wraps in the last three decades. They are still relevant, so why not extrapolate a benign inflation trend into the... Continue Reading
December 8, 2020 - A year ago, as the economy was emerging from its third slowdown following the financial crisis, commodity prices looked set to move higher. However, due to the pandemic lockdown, the global economy abruptly fell into recession and commodity prices quickly... Continue Reading
September 8, 2020 - The S&P Composite has rallied close to 60% since late March, making a historic and remarkable round trip in a short period of time. You would think that after such a move it would make sense to anticipate a significant... Continue Reading