As we strategy the FOMC announcement at 2:00 PM Wednesday, November 2nd, the worldwide inventory and bond markets are understandably nervous. The sturdy value good points final week had pushed the US inventory averages larger, particularly the Dow Jones Industrial Common which I warned was getting very overbought.
By late June there have been technical indicators from the weekly chart of 10-12 months T-Observe Yields that yields had reached a short-term excessive. The eight-week decline took yields from a excessive of three.483% to a low of two.535%. It supported a inventory market rally that shocked many Wall Road analysts.
By August 11th (line 1) there have been indicators that yields had bottomed as each the MACDs and MACD-His had turned constructive whereas yields had been breaking their downtrend. Three days later the S&P 500 peaked at 4325.28 and started a two-month decline with an October 13th S&P low of 3491.58.
The newest excessive within the 10 -12 months Yield at 4.333 % occurred on October 21st. The latest decline in yields has corresponded to the latest inventory market rally. As yields had been making their highs the MACDs had been forming decrease highs, line c. This was an indication that yields had been within the technique of topping.
The rising 20-period EMA of yields was examined final week and yield closed larger Tuesday at 4.055%. With Tuesday’s motion, one can’t rule out a rally again towards the prior excessive and even new highs with the month-to-month pivot resistance at 4.419%. There’s additional chart resistance, line a, at 4.474%. If as a substitute, the ten 12 months yield closes under 3.844%, line b, then yields have accomplished a short-term high.
I additionally comply with different bond market measures together with the 2-12 months T-Observe Yields because the short-term yields have surged probably the most. The yield reached assist at 4.268% final week and has additionally now turned larger. There are potential upside targets on the month-to-month R1 (in crimson) and 4.764%, line a. The two-12 months yield peaked in October on the month-to-month R1 pivot degree (level d) because the MACDs fashioned decrease highs, line c.
I might count on the 2-12 months T-Observe Yield to steer and a each day shut under 4.258% can be an indication that yields are going to maneuver even decrease. This ought to be a really constructive improvement for the inventory market. A high may take one other week or so to be accomplished or it may occur this week if yields shut sharply decrease.