Trend Check with Tushar Chande

Strong Stocks Leading to Bear Market in Bonds and Men?


Bill Gross announced irreverently that there is now a bear market in bonds and men.  Elsewhere, Ralph Acampora opined that this market is stronger than the 1990s stock market.  Both may be right at least on the markets: the charts certainly support their contention. Elsewhere, airlines are taking flight, and oil services are pumping profits.


Stock Market Is Very Strong

I had remarked last week that the broad market is very strong (see Chart 4 of that post).  This week we can see the confirmation in the number of groups and key indexes that have Chande Trend Meter values above 90 on a 0-100 scale.  As the orange box shows in Chart 1, a majority of S&P 500 sub-sectors and key indexes are trending higher vigorously, and the charts are in "full breakout mode".  On the flip side, bonds, utilities and the dollar are trending lower just as strongly (see next section).  So if you are looking for stocks, you can look into these strong sectors.

Chart 1: The orange box highlights that virtually all of the S&P 500 subsectors and key indexes are trending higher very strongly.  On the flipside, bonds, utilities and the dollar are trending down strongly.  The Chande Trend Meter is an intermediate-term measure of trend strength.


The trend-check carpet is all green, with all time-frames and market indexes trending higher.  The time step starts at 25-days at the top row and doubles at each level from top to bottom (see Chart 2).  The number of stocks in the indexes increases from left to right, from 30 to over 2000 stocks in the NYSE composite.

Chart 2: All the major indexes are trending higher across all time frames: as bullish a configuration as one could wish to see.


Bonds Prepare to Test Major Down-trend Line

The 30-year bond yields have made a double bottom, or more loosely, a quadruple bottom, and are edging up towards a trend-line stretching back to the 1980s.   On background, the central banks are now more inclined to tighten, and the global economies are in a coordinated boom.  A closer look shows potential resistance to rising yields in the 3.2-3.4% area, so that there is little fear of runaway rates at the moment.


Chart 3: A look at the decades long decline in 30-year yields shows that we have at least a double-bottom on the chart, and perhaps, loosely, a quadruple bottom, meaning that the down trend line could easily be breached by rising rates.


Chart 4: The usual support-resistance routine helps us plot resistance to rising 30-year yields in the 3.2-3.4% area, so the initial breakout above the down-trend line should be relatively restrained.


Rising Rates, Falling REITS?

We see in Chart 1 above that utilities are weak.  Their close cousins, the REITs seems also to have formed a double top on a monthly chart of the $REIT Dow Jones Equity REIT total return index. A good down-side target is the 50-month average and the support-resistance on the chart in the range of 1600-1530. 


Chart 5: The $REIT index seems to be weakening in sympathy with rising bond yields, and should be watched for clues of bond market actions.


Airlines Take Flight

Falling tax rates seem to have helped US airlines overcome the drag from rising oil prices, as the Dow Jones Airlines index makes a new high and prepares for a breakout.  Individual airline charts show breakouts of various levels, so this is a group that seems to be just taking flight.


Chart 6: The US airlines have the wind beneath their wings from falling tax rates and this has pushed the DJ Airlines index to new highs.  Individual airline stocks have broken out as well.


Oil Services Pumped Higher

The breakout in this group late last year has continued into this year, and this is another group with attractive valuations and improving technicals.


Chart 7: The DJ Oil Services index has followed through on its breakout very late last year.


Looking Ahead

Let us enjoy these strong trends, and perhaps prepare for potential reversals by adjusting our trailing stops as needed.  As usual, head-line risk remains.

John Murphy also has a detailed look at rising 10-year yields here

Erin Swenlin discusses a possible breakout in 30-year yields here.

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Tushar Chande
About the author: , PhD, MBA, is the inventor behind an impressive collection of technical indicators, including the Aroon and Stochastic RSI. He has written several books, holds both a PhD in Engineering and an MBA in Finance, and has over two decades of experience trading the financial markets. Follow Tushar in this blog as he highlights his new "Trend Meter" indicator and shares his analysis of current market conditions. Learn More
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