The employment report showed that 271,000 jobs were added in October, above even the highest estimate and that sent traders flocking out of treasuries. But what was bad news for treasuries was great news for banks. Higher treasury yields generally lead to higher net interest margins for banks. Technically, the Dow Jones U.S. Bank Index ($DJUSBK) was already showing very bullish signs so the strong jobs report simply added to it. On Friday, financials led all sector performance with banks, investment services and life insurance companies leading the charge. The first chart below shows the breakout in the 10 year treasury yield ($TNX) above recent highs while the second chart reflects current technical conditions for the DJUSBK:
TNX:
DJUSBK:
Given the upward momentum in the TNX, it appears that banks are poised to complete their bullish cup to the 360 level, another 4% higher from Friday's close. That is likely to coincide with the TNX rise to 2.50% to challenge the highs from June.
Happy trading!
Tom
