Thought I would move this post (originally posted 8/13) back up to the top as it is relevant today.
TLT over $100 is significant and when it's there it seems to stay above $100 for a number of weeks as investors let things work themselves out in the markets before committing back into riskier assets. Dropping yields can be a gauge of fear in the market; taking a look at previous times (and duration of those occurrences) the TLT has been over $100 compared with the SPY price behavior and major market moves.
A similar view using the 30-year Treasury yield with the S&P500
The gray shaded band (between $38.50 - $48) is basically the 'normal' variation range the 30-yr has been in post-2008, so it makes it easier to see the outlier events. The $34.50 level represents a larger than normal 'fear' mood and trading below that level may give one reason to fade higher price moves in the S&P if price were behaving in such a way.
However, what seems to be a common theme is that these outlier moves occur within a bottoming process. Perhaps the fact that bonds and equities have a closer correlation on this recent sell-off is something we can key in on, something that can give us a confirmation/non-confirmation guidepost.
Here's a daily chart of the 30-year yield and the SPY; the correlation is close, but not perfect
As an aside, the Five year yield has made a new low and the Ten-year is coming close to new lows:
And finally there's the U.S.Dollar Index which just continues to coil throughout these past two weeks during a strong market sell-off. Something to keep an eye on, in my opinion, as it may very well have a directional pull on equities.
Here's a look at a comparison of the Dollar Index to the S&P500
and on it's own, coiling beyond its down trend line
In short, keep an eye on bonds, especially the 30-year yield which appears to be highly correlated and the U.S. Dollar as it looks to be coiling for a move. And remember, bottoms are always a process over time.
The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at firstname.lastname@example.org
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