- 2-yr Treasury Yield Hits 10-yr High.
- The Mother of All Double Bottoms.
- Financials SPDR Extends Stall.
- Leaders and Laggards in Finance.
- Stocks to Watch: WMT, TRN and GILD.
...Big Moves in Treasury Yields
...Treasury yields moved sharply higher the last few weeks with the 2-yr T-Yield ($UST2Y) and the 5-yr T-Yield ($UST5Y) hitting their highest levels since 2008. The 10-yr T-Yield ($UST10Y) is challenging is high from January 2014 as a massive double bottom forms.
The first chart shows four different Treasury yields on one chart using "Price (same-scale)" as an overlay. Notice that the 2-yr yield (blue) is the lowest and the yields are progressing higher as we move to the 30-yr yield. This means the yield curve is positively sloped and "normal". An inverted yield curve occurs when short-term yields move above long-term yields and this has yet to occur.
The indicator window shows the Yield Curve (10YR less 2YR) flattening over the last few years. Note, however, that this line is NOT negative and this means the yield curve is NOT inverted. This line is falling because the 2-yr yield is rising at a faster rate than the 10yr yield.
The Mother of All Double Bottoms
The next chart shows the 10-yr yield with the mother of all double bottoms taking shape. In fact, the yield is on the verge of breaking the intermittent high and this would confirm the pattern. As far as upside targets, the pattern is around 1.5 high and this amount can be added to the breakout zone for a target around 4.5, which is 4.5%. This pattern was first covered in January 2018 in this DITC article.
Financials SPDR Extends Stall
The rise in Treasury yields could be positive for the Financials SPDR (XLF), but XLF has not moved much in eight weeks and is underperforming the S&P 500 this year. First note that XLF and the other finance-related sectors are positively correlated to the 10-yr yield. This implies that they tend to rise when the 10-yr yield rises.
The rise in Treasury yields could be positive for the Financials SPDR (XLF), but XLF has not moved much in eight weeks and is underperforming the S&P 500 this year. The chart below shows weekly candlesticks with XLF moving above the wedge line and challenging the spring highs. Since the four week move from 26 to 28 in June-July, the ETF has traded between 27.5 and 29 the last eight weeks. This tight range represents a volatility contraction that could give way to a volatility expansion. I still think the cup is half full and this means I favor an upside breakout. A close below 27.5 would warrant a re-evaluation.
Leaders and Laggards in Finance
The next chart shows some of the top holdings in the Financials SPDR. Note that Berkshire (BRK/B) and American Express (AXP) are clear leaders with new highs this week. JP Morgan (JPM) is next with a new high in August and a wedge correction into September. Watch for an upside breakout. I am also watching Bank of America (BAC) as it tests the breakout zone and US Bancorp (USB) as it consolidates above its breakout. Watch these two for breakouts as well.
There are still plenty of laggards within the sector, especially among the brokers and some regional banks. Note that Goldman Sacks (GS) and Morgan Stanley (MS) remain short of breakouts and are lagging. Wells Fargo (WFC) broke down with a sharp decline and is nowhere close to a new high. Citigroup (C) is "interesting" because it has a triangle working the last few weeks and gapped up last week.
Stocks to Watch: WMT, TRN and GILD
Wal-mart (WMT) is a retailer that is the fourth biggest component in the Consumer Staples SPDR. The stock broke out with a surge and gap in August and then corrected with a falling wedge of sorts. This could be the pause that refreshes so watch for an upside catalyst from here and/or a breakout.
Trinity Industries (TRN), an industrial stock, was featured last week as it hit the 61.8% retracement zone and a falling wedge formed. This setup is similar to the one featured in Disney in DITC today. TRN broke out with a surge the last two days and it looks like the bigger uptrend is continuing.
Gilead (GILD), a large-cap biotech, is still in a long-term downtrend, but caught my attention when it filled the April gap and advanced overt 20% from May to July. The stock then fell back with a falling wedge that retraced 61.8% and returned to the breakout zone. This puts GILD at an "interesting" juncture, which means watch for a possible reversal. The stock gapped up last week and a follow through breakout would be bullish.
On Trend on Youtube
Available to everyone, On Trend with Arthur Hill airs Tuesdays at 10:30AM ET on StockCharts TV and repeats throughout the week at the same time. Each show is then archived on our Youtube channel.
Topics for Tuesday, September 18th:
- Major Index ETFs Stall
- Tech SPDR and Tech-related ETFs Get Hit
- The Methodology Behind Descending Triangles
- Drilling Down with the Sector Summary
- Airlines, Transports and Defense Lead XLI
- Stocks to Watch: Follow Up (good and bad)
- Click here to Watch
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- Arthur Hill, CMT
Senior Technical Analyst, StockCharts.com
Book: Define the Trend and Trade the Trend
Twitter: Follow @ArthurHill
