US treasury yield jumped last week after Fed gave way to more yield strength. In the background, there were some concerns over resurgence of coronavirus infections in some countries like France, Brazil and India. There was also risk of slower than originally expected vaccine rollouts. Tensions between US China heightened after the “diplomatic” talks in Alaska. Yet, overall, investors were rather unmoved by the negative news. There was no synchronized free fall in stocks, and overall sentiments were just cautious, but still positive.
Yen, Swiss Franc and Dollar ended as the best performers last week but all closed inside prior week’s range only. Dollar lacked committed buying to extend it’s corrective rebound. Though, Yen crosses look ready for a near term pull back. Euro and Sterling ended as the joint weakest.
10-year yield’s up trend on track to 2% handle
10-year yield broke out of range and surged to as high as 1.754 last week, before closing strongly at 1.732. While TNX is clearly overbought (bond oversold), as seen in daily and weekly RSI. There is no sign of topping yet, and the up trend should continue as long as 1.5785 support holds.
Nevertheless, on next rally, it could enter in to an important resistance zone. First, there is 1.971 structural resistance. Second, there is 55 month EMA at 1.998. Third, there is 61.8% retracement of 3.248 to 0.398 at 2.159. Additionally, 2% handle should be an important psychological level. These should be the levels that traders are looking at.
For now, we’re not expecting much drastic reactions in other parts of the markets to further rally in 10-year yield, unless the above mentioned resistance zone is taken out firmly (which we don’t expect to happen in the near term).
Stocks in consolidations at worst, despite surging yields
By drastic reaction mentioned above, we mean, for example, broad based free fall in stocks. That hasn’t happened in the past few weeks despite the steep rise in treasury yields. The lack of synchronized decline in major US indices suggests that the markets are at worst entering into a consolidation phase, rather than a medium term correction
DOW actually made new record high as 33227.78 and matched 61.8% projection of 18213.65 to 29199.35 from 26143.77 at 32932.93. Daily MACD suggests that it might be in upside acceleration phase again. Friday’s pull back was just shallow by technical standard. As long as 32009.67 resistance turned support holds, we’d still expect more record highs ahead.
The “leading” NASDAQ continued to trade in range and was starting to gyrate around flat 55 day EMA. Price actions from 14175.11 could be developing into a sideway consolidation pattern. As long as 12074.06 cluster support holds, (61.8% retracement of 10822.57 to 14175.11 at 12103.24) holds, this is our favored case. However, firm break of this cluster support…
Read More: Sentiments Turned Cautious on Yields and Infections, But Stay Positive