Let’s Look at the 10-Yr Yield

The bond market is breaking, and so let’s take a look.

Week in, week out, we want to ask, “It’s got to be over, right?” But it keeps going. And my last look at $TLT (here) has been a flop and so let’s look again now. That article was almost a month ago, and I had great fibs and a good count for a bottom. But no bottom formed.

Looking at yields, we see two things:

  1. The giant inverse H&S
  2. And a multi-decade trend line

Now, regarding those,

  1. The measured move of the inverse has long since been met (that was to about 3.24%)
  2. And that trend line breakout looks like it might be genuine

10YRYLD

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few weeks or so), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, patrons of any denomination (you get to pick the amount) will be able to read my weekend analyses, Tier 1 members ($20/mo.) get access to all of the articles I write, and Tier 2 members ($35/mo.) get access to those, plus counts on other instruments and my Discord chatroom.


And Let’s Look at Just a Few More Things (Yields, Dollar, Bitcoin, $VIX, and $JNK)

Just a few more observations I would like to make this weekend.

The 10-year yield has a very well-defined head and shoulders pattern up here at the high. This is a very good sign for the bulls:

10YRYLD

This doesn’t have to mean anything for Monday, but it’s going to help soon I think.

The dollar is powerfully overthrowing its bearish wedge:

DXY

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few weeks or so), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, patrons of any denomination (you get to pick the amount) will be able to read my weekend analyses, Tier 1 members ($20/mo.) get access to all of the articles I write, and Tier 2 members ($35/mo.) get access to those, plus counts on other instruments and my Discord chatroom.


A Janky $SPX Count

This is ugly, but the only way (so far) that I can find balance here is with a count that looks a little contrived. It involves placing yellow “a” at an offset low, and it involves making pink B of yellow “c” a triangle (a thought that I have entertained before). It works, it’s not pretty. But if we stage a recovery, I would use this.

SPX

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few weeks or so), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, patrons of any denomination (you get to pick the amount) will be able to read my weekend analyses, Tier 1 members ($20/mo.) get access to all of the articles I write, and Tier 2 members ($35/mo.) get access to those, plus counts on other instruments and my Discord chatroom.


The Long Weekend Review

There are many possibilities available to us, and too many mixed signals at present for me to be strongly convicted toward any one outcome. This weekend, I will discuss alternatives and discuss technicals on a variety of instruments. It will mostly be a display of information. From that information, I cannot conclude whether we’re bullish or bearish because there’s enough pointing in both directions.

My plan over the coming week is to try to take things one day at a time.

In this lengthy article, I will discuss evidence that points to bullish potential, evidence that points to bearish potential, and some things that seem like unknowns.


Some Bullish Evidence

I want to first discuss breadth. During the last rally, which I expected would fail, we had a rare breadth thrust. The rally was bigger than I expected, and I know that irritated some people that I didn’t directly call for that (though I hope my having shown how I profitably traded around the uncertainties has been helpful). And yet, to call for such a rally would have been to expect what I was not expecting: I believed we were in a bear market rally, and those should only go so far. That one went farther in some respects. And despite that, we’ve now given perhaps too much of that back, which goes back to sort of vindicating my original view. In other words, in order to get all of it just right, one would have had to call for a bull market rally in a bear market, and I’m not sure how I could have done that, or why I would have done that.

Let’s discuss exactly what happened with breadth. At the June lows, less than 25% of the stocks in the S&P 500 were trading above their respective 50-day simple moving averages (it was in fact much less, but I want to focus on the statistic—but for those keeping track, it fell below 1% on 6/17). During the course of that rally, that percentage rose sharply to more than 90%. That is a remarkable statistic. And guess what? Since 1942, 100% of the time, this has happened only after the lows were already in. That is to say: the market (at least in the last 80 years), has never done this and then gone on to make new lows.

And furthermore, during the course of the rally, the length of time the S&P 500 spent above its 10-day moving average was quite long: 23 consecutive trading days. And coming out of a low that was at least 20% off the all-time high, since 1942, this, too, has a 100% track record of only happening once the lows were already in. That is to say: the market (at least in the last 80 years), has never done this and then gone on to make new lows.

I hope you can see why, despite originally expecting the rally to fail, I was capable of accepting this evidence, which inclined me to become open to exceptional bullishness once we had a pullback off that August high. This caused me to exit my long-duration short too early, and to begin looking for a bounce a little too soon (though both turned out ok in the end, as leaving some profits on the table is far different from taking a loss, and catching the rally off the low was still delicious enough for me). I can’t possibly catch every inch, and I caught enough of this in the end.

But that renewed openness to a bullish bias has now been cruelly jeopardized, as this decline has now become severe in its own right. And in fact, it has been accompanied by a breadth collapse, one that threatens the bullish case, and we can all see that on the chart regardless just by looking at the miserable price action since Jackson Hole.

So My Good Lordy. If you’re someone like me who prudently attempts to incorporate market signals into your trading biases, then you’ve had quite the hard time here calling the shots. And it feels like we’re simply at the mercy of spastic Fed messaging:

SPX

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few weeks or so), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, patrons of any denomination (you get to pick the amount) will be able to read my weekend analyses, Tier 1 members ($20/mo.) get access to all of the articles I write, and Tier 2 members ($35/mo.) get access to those, plus counts on other instruments and my Discord chatroom.


Some Weekend Thoughts Before the Abyss: Bear Porn Edition

I just want to organize a few thoughts this weekend. And I would like to say something obvious, something that should go without saying, but I want to make sure some folks aren’t upset.


I have been open to bullish outcomes for much of this year. Why? Well, it’s because I’ve lived through rate hike cycles before, and usually they’re not quite this bad (in fact this is by far the worst in history). And I also know that, historically, “technical” bear markets are just as common as long-lasting bear markets that go much deeper. And in April in particular, sentiment deteriorated so sharply that I became alive to the possibility that we may have been much closer to a bottom than I had at first believed possible. And so I wanted to remain open to that possibility—that the bottom could be at hand. Now I am changing my mind here in the short-term, but it’s almost entirely due to technical reasons. There are structures forming in the markets that are almost certainly very bearish. And I want to respond to those. So, I’m not trying to be edgy, or cute, or flip-floppy; I’m simply acknowledging that bear flags are bear flags until they are not. And many of these are well-defined. In fact, all year, one thing we have lacked is really good bearish structure on the way down. And now we have them, so we should pay special attention.


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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few weeks or so), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, patrons of any denomination (you get to pick the amount) will be able to read my weekend analyses, Tier 1 members ($20/mo.) get access to all of the articles I write, and Tier 2 members ($35/mo.) get access to those, plus counts on other instruments and my Discord chatroom.


Not Calling For This, Just Observing It

What originally clued me in to the super dark thought was actually Amazon. I had a good, working count on it for a while, generally behaving the way I wanted, but as the market made new lows across the board, it gave me this:

AMZN

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few weeks or so), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, patrons of any denomination (you get to pick the amount) will be able to read my weekend analyses, Tier 1 members ($20/mo.) get access to all of the articles I write, and Tier 2 members ($35/mo.) get access to those, plus counts on other instruments and my Discord chatroom.


Things Look Good to Me

A whole raft of things I would like to see are coming together here. The shitty inflation print and subsequent drop was a brief distraction from what’s coming anyways, I think.

Here is my interpretation of that:

  1. The market wants to know if the Fed is serious about fighting inflation
  2. That bad print was the test
  3. Last meeting, Powell said, “No 75 bps next meeting”
  4. After the bad print, Powell decided to prove himself by committing to the higher hike, i.e., fighting inflation is so important that he’s willing to go back on his word

What were the results?

Yields, needle candle on the weekly:

10YRYLD

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few weeks or so), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, patrons of any denomination (you get to pick the amount) will be able to read my weekend analyses, Tier 1 members ($20/mo.) get access to all of the articles I write, and Tier 2 members ($35/mo.) get access to those, plus counts on other instruments and my Discord chatroom.


Several Small Data Points

Just a few observations I would like to pass along.

Check the dates, maybe it’s that easy, something to do with institutional buy and sell scheduling, unsure:

SPY

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few weeks or so), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, patrons of any denomination (you get to pick the amount) will be able to read my weekend analyses, Tier 1 members ($20/mo.) get access to all of the articles I write, and Tier 2 members ($35/mo.) get access to those, plus counts on other instruments and my Discord chatroom.