InvestedCentral
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It's deja vu. We're once again (2nd time in a week) taking a look at the yield on the 10 year treasury as our Chart of the Day. The reason why is obvious to us. The yield on the 10 year treasury has provided us excellent clues as to the subsequent direction of equity prices. Over the past couple of days, we've seen this yield break down below critical intermediate-term support. Such a breakdown reflects investors' unwillingness to accept the higher risk that accompanies equity market trading. Instead, money is flowing towards bonds, with corresponding yields sinking fast. Any time investors show signs of risk aversion, equity prices are in trouble. We've seen several instances in the last year or two where the 10 year yields have provided early warning signals that equity prices were about to follow the direction of the yield. On Sunday, June 20th, in our market FORWARD section of our marketPULSE newsletter, here's an exact quote:
"Here's the problem now: The S&P 500 is climbing, but the yield on the 10 year treasury is at key support and threatening a breakdown. A breakdown in yield support near 3.10%-3.15% would almost certainly put downward pressure on equities. It would be very surprising to us if the performance of treasury yields and the S&P 500 diverged. The bond market very likely could be telling us something about the likelihood that the current rally fails. Please keep a close eye on the 10 year treasury yield, especially if it breaks that critical support level"
The yield closed on Tuesday at 2.96%. At the opening bell on Monday, June 21st, the S&P 500 stood at 1131.23. Six trading days later, we're back on the verge of a major breakdown, having fallen 90 points, or nearly 8% in a little more than a week. Hopefully, you understand why we follow such key relationships in the market like the 10 year treasury yield vs. the S&P 500. Many times, they tell us as much or even more than price/volume trends and MACDs.
"Here's the problem now: The S&P 500 is climbing, but the yield on the 10 year treasury is at key support and threatening a breakdown. A breakdown in yield support near 3.10%-3.15% would almost certainly put downward pressure on equities. It would be very surprising to us if the performance of treasury yields and the S&P 500 diverged. The bond market very likely could be telling us something about the likelihood that the current rally fails. Please keep a close eye on the 10 year treasury yield, especially if it breaks that critical support level"
The yield closed on Tuesday at 2.96%. At the opening bell on Monday, June 21st, the S&P 500 stood at 1131.23. Six trading days later, we're back on the verge of a major breakdown, having fallen 90 points, or nearly 8% in a little more than a week. Hopefully, you understand why we follow such key relationships in the market like the 10 year treasury yield vs. the S&P 500. Many times, they tell us as much or even more than price/volume trends and MACDs.