The 10-year treasury yield topped 4% last Thursday and the S&P 500 and NASDAQ made a bottom on the same day. The DOW bottomed on Wednesday, one day earlier. The pundits were yelling for the 10-year treasury to go to 6% based on the sticky inflation data. But the market has looked ahead already by topping out the 10-year treasury yield at 4% level. We sent out a private email last Friday stating that the stock market has made a bottom last Thursday and a long signal was produced on Friday.
The main reasons for the long signal are as follows:
1. The 10-year treasury yield has topped last Thursday and the lowering 10-year treasury yield will provide room for the stock market to run.
Below is the 10-year treasury yield daily chart. You can see that the daily cycle 02/02/23-02/28/23 broke out the down trend line as if it will start a new bullish trend to take out old high. But the run from the 02/28/23 to 03/02/23 is a classic bull trap because how it behaved the next day. The yield gap lower on Friday combined with two bullish days (last Thursday and Friday) in equities are the confirmation that the 10-year treasury yield has topped which will provide room for the equities to run.
2. The 3-week selloff in the NASDAQ didn’t nullify the prior breakout signal. The bullish trend is still intact.
3. The mid October 2022 low is a seasonal low that was triple tested. It is only 5 months since the seasonal low. It could go another 2 months before a correction.
4. The early cyclical sector semi-conductor is leading the market, healthcare, energy and staples are lagging. Those are bullish for the equities.
The Fed chair will provide congressional testimony next Tuesday and Wednesday about inflation and policy approaches. The politicians will bully the Fed to not go crazy with rate hiking so we should expect soft talks from the testimony. Perhaps the market is betting on that therefore the rates topped and the stocks rallied too last week.
Originally we thought the equities would bottom around the CPI data release on March 14. It seems like the market didn’t have the patience to drag another week. So enjoy this little bull leg for the time being.