Highlighting "Fear" In the Bond Market
by Mike Paulenoff
February 28, 2021 • 11:55 AM EST
In it, Mike highlighted the "increasing fear" in the bond market, with longer-term rates projected to continue to rise, and in the "Fear Index" itself, the VIX, suggesting increased risk in the equity markets.
The discussion turned out to be a valuable heads-up to MPTrader members in view of the subsequent dismemberment of the bond market into late last week, when longer-term (10- Year) Yield rapidly backed up to 1.61% from the 1.25% level it was at when Mike first posted his analysis on February 17.
At the same time, the equity markets sold off strongly last week, with the S&P 500 shedding 2.4% and the Nasdaq 100 losing 4.9%.
Mike posted frequent 10-Year YIELD and TLT updates throughout the week, looking for signs of upside exhaustion in Yield and downside exhaustion in the TLT, followed by signs of a countertrend move.
Early Friday morning, Mike wrote:
"Ahead of the trading day, let's address again the elephant in the room, the bond market via my attached 4 hour chart of the TLT, which shows today's pre-market strength into the 140.20 area compared with yesterday's violent, capitulation down-spike to 136.61. During the hours since the spike low, TLT has climbed 2.6%. Let's notice that as of last evening, DSI (Daily Sentiment Index) registered a very bearish and oversold figure of 9, which at the very least is a warning to bond bears that the market could be a bit too comfortable and entrenched on the short side."
What's next for TLT and 10 year Yield? Will the recent behavior of the bond market continue to impact the equity indices?
Join Mike and our members for constant intraday discussion of bond market and index ETFs, individual equities, macro indices and ETFs, commodities, precious metals and miners.
This past Tuesday, January 18, Mike Paulenoff alerted MPTrader subscribers to a developing breakdown in the Russell 2000 Small Cap ETF (IWM).
Mike noted that his Point & Figure chart exhibited an ominous topping formation that threatened to send the IWM nearly 20% lower (downside target near 170) if the Small Cap ETF, which was trading at 209.39 at the time, violated its support plateau and printed 207.50.
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"My near and intermediate-term setup work is 'warning' me that finally, VALE has the right look of a pattern and momentum configuration that indicates it has put in a significant corrective low at 11.16 (11/16/21) in the aftermath of a 70% correction off of its 5/10/21 high at 23.68. Daily Momentum exhibits glaring positive divergences at every new reaction low since early October.
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"My NEAR and INTERMEDIATE TERM pattern and momentum work argue that today's Bear Trap is a VERY significant low (34.88), and ends the most recent corrective down move from the 10/08/21 recovery rally high at 48.
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