The
issue of the week for the financial market is the continued strength in the 10-year
Treasury yield. The 6% intraday rally in
the CBOE 10 Year Treasury Note Index (TNX) on Tuesday made its presence
immediately felt by putting a damper on an early stock market rally
attempt. What began as a 130-point rally
for the Dow 30 index was quickly reversed by noon on Tuesday when the Dow gave
back nearly all its gains thanks to the TNX rally.
The
6% TNX rally also caused an increase in the number of stocks making new 52-week
lows on the NYSE. By 12:30 on Tuesday
that number had risen to 50, a sign that internal selling pressure is still a
problem for the stock market.
There
are preliminary signs that the rally in interest rates may soon reverse, at
least temporarily. Consider for instance
that a recent Bullish Consensus poll for Treasuries hit a 1-year low of 21%, a
level commensurate with past bond market bottoms (and yield peaks). There are negative divergences in a number of
technical indicators, such as the MACD indicator shown below.
A
short-term reversal of the uptrend would be signaled by a close below the 30-day
moving average shown in the above chart.
It must be emphasized, however, that as long as TNX remains above the
rising 30-day MA the dominant short-term trend for the Treasury yield remains
up. A reversal of the TNX rally would be
most welcome and would at least temporarily remove the recent pressure from
equities.
