23
May

The Morning Report ...But The 10 Year Yield is Higher?

Good morning traders!

I am feeling pretty safe in my cash position this morning with markets dropping lower the world over. I will wait it out this morning to see how things settle but a gap below the 8 ema would suggest some moves lower in the coming days. The SPY chart below has some levels drawn out that may act as support. I see 163.70 then 161.06 which is the first fib level from the November low.

Yesterday's move lower in US markets was blamed on statements from Mr. Bernake, but he has made pretty similar statements before without much effect on markets, so why now?

I often say markets will pull back when they need to and they will find their excuse to do so, or rather the media gives them an excuse by blaming whatever rhetoric is popular at the moment. In this case, it was the Fed's minutes but today with world markets and US futures dropping, I see the blame being put on Japan and China. Again I remind that the media looks for excuses to justify the moves that need to happen.

What gets me on this little pull back, is the 10 year treasury bond. Bonds go up when markets go down. Certainly there have been correlations that have made contrary moves of late, but this one tends to hold strong. Yet yesterday's move in the 10 year was not as it should have been with markets down. With the 10 year yield continuing higher (meaning the bond itself will go lower), there is a disconnect. And so I propose the following macro idea: 

Housing has been in strong recovery. Quite suddenly, homes for sale are selling within 10 days of being listed with multiple bids above asking. Is this really happening again? The difference being, buyers must come in pre-approved or with sufficient cash to make the buy, but we know banks have been loathe to lend. Perhaps they have been persuaded to open up lending again to well qualified borrowers. This is what they  are supposed to do, after all, but since 2008 the lending market has been closed to even the highest quality borrowers. 

Is it possible that banks are de-leveraging in order to start lending again? And is this what is really bringing the markets down? In which case, this would be a bullish assumption on the overall economy and would suggest that once the de-leveraging is done that markets will rip back higher on their merry bullish way.

I know, this is a bit out to left field, but check out the charts. Note that the 10 year and the SPY correlate in opposite directions pretty decently....until yesterday, when they were both down. 

Click on charts to enlarge.

spy23 ief

 

One Response for "The Morning Report ...But The 10 Year Yield is Higher?"

  1. [...] surging, and while last week I laid out my reason why this would be bullish for the stock market (10 Year Yield is Higher?), I see the doom and gloomers posting that panic will ensue and blaming this morning's sell off on [...]

Leave a Reply

Back to Top

Password Reset

Please enter your e-mail address. You will receive a new password via e-mail.