Too much for V-shaped recovery.
The yield on the 10-year Treasury bond TMUBMUSD10Y,
it just broke below an ascending trend line, suggesting that the uptrend of the COVID-19 low in early March has ended.
That upward trend in rates was significant for both Main Street and Wall Street. It helped support the belief that the worst effect of the COVID-19 pandemic on the economy was over, with data suggesting that the labor market was improving rapidly as the 50 US states implemented measures to reopen their economies. See Financial Reports for recent financial information. Bond yields rise as prices fall.
“The break here suggests that the highest lows pattern since April has been locked, and we can see lower returns in the coming sessions combined with a further pullback in stocks that they experienced since the March collapse,” Dan Wantrobski, technical analyst by Janney Montgomery Scott. , he wrote in a note to customers.
Yields have been steadily advancing, coinciding with a V-shaped rebound in the stock market, which helped drive the S&P 500 SPX index,
as much as 44.5% off its March low to its June 8 recovery high, where it fell 87% from the COVID-19 sell-off, and the Nasdaq Composite COMP jumped,
to new record closing peaks.
“Watching over the [10-year yield] trends are important right now because of the positive directional correlation it has with our broader US equity markets, ”Wantrobski wrote.
Since the beginning of 2020, the correlation coefficient between the S&P 500 and the 10-year Treasury yield TMUBMUSD10Y,
is 0.67, according to a MarketWatch analysis of FactSet data, where a perfect correlation of 1.00 would indicate that they were in the same direction, moving in the same direction and to the same degree.
As the number of COVID-19 cases in the US rose to a new daily record on Friday, prompting some states to push the pause at reopens, the shares were sold and the Treasury was 10 years old. caught a safety flight offer, to boost 10: Annual performance decreased 3.8 basis points (0.038) percentage points to 0.636%, the lowest close since May 14. See the Bonus Report.
Do not miss: Coronavirus Update: United States Sets Record for New Cases in One Day as Texas Becomes First State to Reimpose Restrictions.
FactSet, MarketWatch
Yield fell below a trend line that rose from the March 9 low of 0.499% which also connected the April 21 close of 0.571% and the June 11 close of 0.653%. The bullish trend line extended to around 0.673% on Friday.
And that bodes ill for stocks.
The S&P 500 fell 2.4% on Friday to close at 3,009.05. Although it was still above its June 11 pullback low of 3,002.10, keep in mind that 10-year performance has been leading the S&P 500, not running alongside it. The COVID-19 performance bottom was reached on March 9, while the S&P 500 peaked on March 23, and the performance recovery peak was reached on June 5, one session before the maximum recovery of the S&P 500.
And while the S&P 500 doesn’t have a trend line outside of its March low to use as a guide as 10-year performance has, it has closed below what Wantrobski saw as a short-term support zone between 3,020 and 3,050. The bottom of that support zone was marked by the 200-day moving average, which many consider a dividing line between bullish trends and long-term bearish trends. Read more about the 200-day moving average.
FactSet, MarketWatch
The next key level to watch out for would be the June 11 close of 3,002.10, as the close below would confirm a bearish “double top” reversal pattern, referencing the closing highs of June 8 and 23. .
Meanwhile, Wantrobski said that since the S&P 500’s bearish action has produced some very short-term oversold readings, any new trend will likely not be smooth.
“Keep seat belts fastened and tray tables stowed upright …[there’s] there is likely to be more turmoil in our opinion, “Wantrobski wrote.
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