Commodities Countdown

Bond Markets Get Sold Off As Rates Rise Across The Curve Webinar Highlights 20151105

Greg Schnell

Greg Schnell

Chief Technical Analyst, Osprey Strategic

The bond market yields were all rising in concert across the curve. From Corporate, Junk, and Treasuries, bonds were being sold. I backed out the effect of coupon payments so theses charts are unadjusted for yield.

The first chart is the corporate bond ETF (LQD) breaking a 6-year trend line.


Next is the high yield bond ETF (JNK) for more speculative high return bonds. It is falling out from the 5-year range and breaking down. It broke down in September, bounced back up and tested resistance from the bottom side, and appears to be falling away again. This is typical price action that confirms the move to lower prices in this space.

The Inflation-protected bond ETF (TIP) is dropping in price so the bond arena is not expecting inflation any time soon. We can see the break of the 5-year trendline happened in June and the chart continues to make lower lows. There is some support around 109. Again, the chart is unadjusted for distribution payments.

I regard the above moves as risk off, but perhaps this will lead to a big rotation into equities. 

The 7-10 Year Treasury Bond ETF (IEF) stalled at a 61.8% retracement and is clearly dropping quickly. The 8-year uptrend will be tested over the next few weeks.

Next the TLT is breaking down as well. This is the only chart unadjusted, but the unadjusted version broke down last week. The bond review was an important segment of the Webinar that can be seen here.  Commodities Countdown 20151105.

There was very little new news in the commodities space. The price of gold broke down last week and the trend continues with silver and gold. Oil was flat on the week after a brief run up higher and Natural Gas made a one-week high for the first time in a long time.

I spent a lot of time discussing the breadth indicators like $NYSI, $NASI and the 5 $BP charts. I did not include the Nasdaq and SPX charts in the written article last week so let me include them this week here. The lime green lines were the levels during the Thursday webinar. Firstly, the wavy $BPNDX line for the NASDAQ 100 index is back to levels where it has struggled all year, near 75%. However, the percentage of stocks above the 200 DMA is under 60% even as we make new highs. That is concerning, but a renewed push with broad participation would be a meaningful signal that the lows are behind us.

For the $SPX, here is the $BPSPX. As the most stable broad market index in the world, this has performed better than I expected if the bear market is going to appear. It has made it above my red zone and this is bullish. We can see the $BPSPX in blue is reaching the same 75% level that the NASDAQ 100 was at, but it is pushing above the red zone and the downward sloping trend line. This is more bullish than I expected on the rally and great news if it can continue. The % of stocks above the 200 DMA ($SPXA200R) shown in the bottom panel is currently at a level where the rally tops were put in back in 2008 and 2011. This is an important time to see if we can garner more breadth!

Again, these are the most bullish 'Bullish Percent Charts' of the five, so I would encourage you to listen in to the webinar if you want more information. The bottom line is that just when it feels like the market is breaking to new highs, we are at the levels where the market runs out of fuel. Rather than decide whether this is a new leg in the bull market or the top of the new bear market, we'll let the charts do the talking. Currently, we are at very important resistance. Click here to watch the webinar. Commodities Countdown 20151105. It is not uncommon for the NASDAQ 100 to make a higher high when the $SPX fails to do so on a final peak. Now that the Nasdaq has made a higher high, it is important to watch the $SPX for confirmation.

I covered off about 50 charts in an hour, so there is a lot of information on the webinar. I encourage you to spend some time on the weekend if you can find some as I try to demonstrate what we are watching for now. Last week we closed on Friday at 2080 on the $SPX. We spent two days going higher, and at the time of writing this, three days going lower. I would suggest 2080-2085 should hold up if this market is going back up to retest the highs. It isn't a prerequisite that we go back up to test it, but if financials start to run here, a test is likely. A break below 2060 would be very significant for the bears.

Good trading,
Greg Schnell, CMT

Greg Schnell
About the author: , CMT, MFTA is Chief Technical Analyst at Osprey Strategic specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More