It’s All About Risk and the Long Bonds

Monday, after a lot of spooky headlines, the SPDR S&P 500 ETF (SPY) touched its 23-month moving average (MA) or the two-year biz cycle breakout point right around 417.

Plus, the iShares 20+ Year Treasury Bond ETF (TLT) flashed green as did IWM, the small caps.

The big question is, can IWM close out October above 170?

If not, any rally will be short-lived.

Today was an interesting day.

SPY also cleared back over the 200-day MA, which if held, could mean more relief rally.

But, TLT is reversing as well, so what we don’t want is for the long bonds to outperform SPY.

Why?

  1. That would be risk-off and recessionary.
  2. It would embolden the already bold commodities to run, especially with the dollar falling.

Which we see as #stagflation.

From a technical standpoint, yes, this is a mean reversion.

However, if you look back to July, it is the 5th oversold rally in TLT.

Sustainable?

The biggest fundamental dynamic is that inflation can go hyperbolic (it already is in certain soft commodities because of the geopolitical soup).

And, if the Fed relaxes now, one must wonder if they will be caught from behind again.

Nonetheless, for us, the most important aspect of this is how TLT performs against the SPY and how HYG (junk bonds) perform against the TLT.

Bulls want TLT to underperform both.

Note the ellipses and text on the chart of TLT or the 20+ Year long bonds.

Back in March, when we had the bank crisis flash crash, bonds signaled a flight to safety by outperforming the SPY starting March 7.

At the same time, the price was around 101.

Real Motion showed a bullish momentum divergence as TLT crossed over the 50-DMA long before the price did.

SPY crashed, and TLTs rallied to 109.10 in a matter of days.

Fast forward to today, TLT remains slightly underperforming the SPY.

The momentum indicator shows a mean reversion but not a bullish divergence.

Should TLT do what it did in March, that is, outperform the SPY, take that as a warning.

That is a sign of risk-off, and perhaps a harbinger of an oncoming recession; or worse, stagflation.

Let’s not freak out yet though.

It is always good to plan ahead yet act on price accordingly.


This is for educational purposes only. Trading comes with risk.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at [email protected], our Head of Institutional Sales. Cell: 612-518-2482.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

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“I grew my money tree and so can you!” – Mish Schneider

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.


Hear Mish’s thoughts on earnings, the macro environment, and her three stock picks on Bloomberg BNN.

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Coming Up:

October 24: Benzinga Pre Show

October 26: Cheddar TV on the NYSE

October 27: Live in-studio with Charles Payne, Fox Business

October 27: Live in-studio with Yahoo Finance!

October 27: Recorded in-studio with Investor’s Business Daily

October 29-31: The Money Show

Weekly: Business First AM, CMC Markets

November 1–13 VACATION


  • S&P 500 (SPY): 417–420 support
  • Russell 2000 (IWM): 170 now in the rearview mirror
  • Dow (DIA): 332 support pivotal
  • Nasdaq (QQQ): 351 recent low and support
  • Regional Banks (KRE): 35 next support
  • Semiconductors (SMH): 140 support.
  • Transportation (IYT): 225 pivotal
  • Biotechnology (IBB): Under 120 so 110 area next support
  • Retail (XRT): 57 key support still

Mish Schneider

MarketGauge.com

Director of Trading Research and Education



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3 Key Relationships to Help Assess Market Direction

If you are finding yourself fluctuating between bullishness and bearishness, then congratulations! Hopefully, that also means you are waiting for certain signals to help you commit to one way or another.

Here are the signals we are waiting for before overly committing to a bias:

  1. As we wrote over the weekend, how the junk bonds (high yield high debt bonds) do independently, and how they perform against the long bonds (TLT).
  2. How the retail and transportation sectors do (along with small caps) as they represent the “inside” of the US economy.
  3. How DBA (ags) and DBC (commodity index) do relative to the strong dollar and higher yields.

The first chart shows you a sell signal mean reversion as far as the ratio between long bonds and junk bonds signaled. However, junk still outperforms long bonds — at this point, that says risk on, but a cautious risk on, with junk gapping lower and taking out summer lows (but holding March lows at 72.61).

Retail (XRT) had a solid reversal bottom last week. Now, it must clear last Friday’s highs and hold June lows… plus, XRT outperforms SPY right now.

Transportation (IYT) is now underperforming SPY. Although consolidating after breaking under the 200-DMA (green), it looks vulnerable. Could that change? A move over 235 would be a good start.

Looking at DBA, that whole commodities sector is outperforming the SPY. Makes you wonder what would happen if the dollar and/or yields soften.

Trading slightly below the July 6-month calendar range high, we anticipate DBA can continue higher, especially if price retakes the 50-DMA (blue line). DBC fell right onto support at its 50-DMA. Momentum also fell into support. Furthermore, DBA also outperforms SPY. This certainly makes the case for higher commodities and inflation as a trend again, especially if long bonds and the dollar soften.


This is for educational purposes only. Trading comes with risk.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at [email protected].

“I grew my money tree and so can you!” – Mish Schneider

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.


Watch Mish and Nicole Petallides discuss how pros and cons working in tandem, plus why commodities are still a thing, in this video from Schwab.

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Take a look at this analysis of StockCharts.com’s Charting Forward from Jayanthi Gopalkrishnan, which breaks down Mish’s conversation with three other charting experts about the state of the market in Q3 and beyond.

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Coming Up:

October 4: Jim Puplava, Financial Sense

October 5: Yahoo! Finance & Making Money with Charles Payne, Fox Business

October 12: Dale Pinkert, F.A.C.E.

October 26: Schwab and Yahoo! Finance at the NYSE

October 27: Live in-studio with Charles Payne, Fox Business

October 29-31: The Money Show

Weekly: Business First AM, CMC Markets


  • S&P 500 (SPY): There are multiple timeframe support levels around 420-415.
  • Russell 2000 (IWM): 170 huge.
  • Dow (DIA): 334 pivotal.
  • Nasdaq (QQQ): 330 possible if can’t get back above 365.
  • Regional Banks (KRE): 39.80 the July calendar range low.
  • Semiconductors (SMH): 133 the 200-DMA with 147 pivotal resistance.
  • Transportation (IYT): 237 resistance, 225 support.
  • Biotechnology (IBB): 120-125 range.
  • Retail (XRT): 57 key support; if can climb over 63, get bullish.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Mish Schneider

About the author:
Mish Schneider serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision.

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#Key #Relationships #Assess #Market #Direction

Bonds, Secular Bear Market, and the Impact on Small Caps

Bonds have had one of the worst years in modern times and one of the fastest rates of interest rate rises.

The good news is the market has absorbed the bond’s performance. A better risk-on environment is when the SPY outperforms the long bonds. The same is true with junk bonds outperforming long bonds. Another indicator of risk-on.

The yield curve remains inverted — or the potential recession indicator has not, to date, caused a recession. Hence talk of a soft landing. Will yields tap out at 5.5-5.75%? Many think so. However, higher for longer seems more likely.

Furthermore, inflation is not quite done. The PCE, due out this week, is at 4%, not 2% And just as it took from 2020 until spring 2022 to see inflation soar then peak, it is likely we will not see the impact on these rates until 2024 or even 2025. Talking technical, bonds do not look likely to rally from here (TLT). However, we are watching the October 2022 lows carefully.

A potential double bottom exists if TLTs can clear back above 98. A move under 95, though, points more to a retest and possible break of the low 91.85.

How does this impact small caps?

Small caps, as measured by IWM, are key for the fall and into 2024. You can also look at SML, the S&P 600. Over the weekend, we covered that the Russell 2000 (IWM) could be forming an inverted head-and-shoulders bottom going back from the start of 2023. First though, it must hold 180 and clear 190. No small task.

Small caps are related to commercial real estate, so that is a caveat.

Why could small caps do well? The Government has spent a lot of money on US manufacturing, and the Dallas-fed index fell less than expected. In the US quest for more independence on goods, we must look to costs and labor for the trend to sustain. It must be noted though, that prices and wages paid soared. 

The IWM chart shows a lack of leadership thus far against the SPY. The Real Motion Indicator has no real divergence from price. Nonetheless, IWM needs more everything-more rally, more leadership, and more momentum.

Our small caps quant model has done well this year, buying companies with earnings growth. The basket is an interesting combination of semiconductor companies, home building and beauty staples.


For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at [email protected].

“I grew my money tree and so can you!” – Mish Schneider

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.


Mish served as guest host for the Monday, August 28 edition of StockCharts TV’s The Final Bar! Mish puts her own spin on the Market Recap, starting with the indices and then exploring sectors using her “Economic Modern Family” analysis. She then sits down with Keith Schneider for an insightful interview. Keith discusses topics such as agricultural commodities, biotechnology, and volatility.

Mish and Charles discuss a secular bear market in bonds and why gold could outshine expectations in this appearance on Fox Business’ Making Money with Charles Payne.

Mish and Paul Gruenwald discuss soft landings, recession, inflation, GDP and China on Yahoo Finance.

Mish looks at a selection of popular instruments and outlines their possible direction of travel in this appearance on CMC Markets.

Mish talks NVDA and “Trading the Weather” in these two appearanceson Business First AM.

Read Mish’s commentary on Gold in these two articles from Kitco.

Mish and Nicole discuss where to park your money, barring any watershed event, in this video from Schwab Network.

On the Friday, August 18 edition of StockCharts TV’s Your Daily Five, Mish covers bonds, the dollar, risk-off indications and several key commodities with actionable levels to consider.

Mish joins Maggie Lake of Real Vision to discuss what rising bond yields mean for investors across the market landscape, what comes next for stocks and commodities, and why she is taking profits here in the growth and AI stocks.

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Mish and Jared go over oil and what might happen with small caps and regional banks in this appearance on Yahoo! Finance.


Coming Up:

Mish will be on break starting August 30 and return Tuesday, September 5th.

September 7: Singapore Breakfast Radio, 89.3 FM

September 12: BNN Bloomberg & Charting Forward, StockCharts TV

September 13: Investing with IBD podcast

October 29-31: The Money Show


  • S&P 500 (SPY): 440 now back to pivotal.
  • Russell 2000 (IWM): Popped off the key support. 185 pivotal.
  • Dow (DIA): Will watch to see if it can back over 347.
  • Nasdaq (QQQ): 363 pivotal.
  • Regional Banks (KRE): Needs to hold 44 to be convincing.
  • Semiconductors (SMH): 150 back to pivotal.
  • Transportation (IYT): 239 still support to hold, with 252 biggest overhead resistance.
  • Biotechnology (IBB): Compression between 124-130.
  • Retail (XRT): The 6-month calendar range low is 62.90 — needs to clear it.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Mish Schneider

About the author:
Mish Schneider serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision.

Learn More

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#Bonds #Secular #Bear #Market #Impact #Small #Caps