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S&P 500 NEEDS MORE VOLUME TO CLEAR OVERHEAD RESISTANCE -- BOND YIELDS ARE STILL IN DOWNTREND BUT LOOK OVERSOLD -- THAT COULD LEAD TO HIGHER YIELDS -- BOND FUND TESTS SUPPORT LINE
By John Murphy
S&P 500 MOVES UP TO CHALLENGE 200-DAY LINE... My message from last Thursday described a potential "head and shoulders" bottom forming in the S&P 500 with the August low looking like a "right shoulder". That potentially bullish pattern suggests that the market is in the process of forming a bottom. For that bullish pattern to be confirmed, however, prices need to clear their August high. That would accomplish two other things. It would also break the "neckline" drawn over the June/August highs, and it would break through the (red) 200-day moving average. The only thing missing from the chart so far is volume. That may be partially due to the tendency for end of summer trading to be on the light side which also coincides this week with a Jewish holiday. Whatever the reason, stocks need more upside volume for the current bounce to continue. The two requirements for completion of a H&S bottom are the ability of the S&P to close above its August high and on strong volume. As I suggested last week, however, I don't think it's too soon to start re-allocating some funds out of bonds and into stocks. Part of that reasoning is also based on the four-year cycle which is due to bottom during the second half of 2010.
(click to view a live version of this chart)
Chart 1
BOND YIELDS ARE OVERSOLD... One of the reasons that I believe it's time to move some money out of bonds is that the yield on the 10-Year T-Note has reached potential support in an oversold condition. Chart 2 shows the TNX starting to bounce off its March 2009 low. More importantly, its 14-month RSI line has reached oversold territory below 30 for the first time since the end of 2008. That suggests to me that bond yields are stretched too far to the downside and could start climbing. Rising bond yields mean falling bond prices.
(click to view a live version of this chart)
Chart 2
BOND YIELDS ARE BOUNCING ... Short-term technical indicators are also hinting that bond yields may be starting to bounce. The daily bars for the TNX are moving up to test their (blue) 50-day moving average. A crossing above that line would be a short-term sell signal for bonds. The 14-day RSI line on top of Chart 4 has been trending sideways for the last four months between 50 and 30 and is now testing the upper end of that range (see circle). A move above 50 would be a sign that short-term momentum for bond yields is shifting upward. The daily MACD lines (below chart) have turned positive after forming a "double bottom" between June and September. That "positive divergence" also hints at higher yields. Higher bond yields are bad for bonds but are usually good for stocks. Chart 4 certainly isn't enough by itself to turn bearish on bonds. It does suggest, however, that bullish enthusiam for bonds has gotten stretched too far and may be due for a correction.
(click to view a live version of this chart)
Chart 3
BOND FUND TESTS SUPPORT LINE... If bond yields are oversold, that means that bond prices are overbought (since they trend in opposite directions). Chart 4 shows the steep price advance of the 7-10 Year T-Bond Fund (IEF) since April. The recent selloff has IEF testing the uptrend line that has been in place for the last six months. Meanwhile, the 14-day RSI is threatening to fall below the 50 level, and the daily MACD lines have already turned negative. In my opinion, that's reason enough to consider taking some profits in Treasury bonds -- especially if the uptrend line is broken.
(click to view a live version of this chart)
Chart 4 |
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狗仔卡
发表于 2010-9-10 07:08 PM
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发表于 2010-9-10 07:15 PM
