Obvious for markets today is the volatility associated with price movements. My first exhibit is this chart of the S&P 500, which looks rather "whipsaw" in fashion:
Evident from the chart is how the S&P has went up and down in fast gyrations. Such movement would certainly dissuade me from having any association with this market at first glance. Yet, as one can see, a range has been set. Second observation is that a chart pattern might be proving itself. If one opens the chart, today's high of the S&P remains lower than the last high. The last high was on January 22 at 2063, today's high, on February 5, reached only 2062. That sets into place a bearish descending triangle pattern, given two essentially equal lower price points of 1992 on January 15 and January 30. One can argue a third horizontal price point on January 6 at 1992 on the lower end of the candle.
Such a set up tends to portend rather bearish. Same can be said for the Nasdaq, but not as technically precise, here's a look:
Nasdaq reveals also a falling triangle pattern. Open the screen up and one can see more clearly...being falling highs for the Nasdaq, with a February 5 close at 4,765 versus its previous high on January 26 of 4,771. Add to this the nearly equitable triple bottom of December 16, January 6 and January 16, and we have a close to perfect descending triangle.
By themselves, no one can rely on but a few chart patterns to see the tea leaves. Reality is that the Dow can look rather bullish. A cautionary tail for all stocks is the out-performance of Disney for the Dow and Apple for the S&P, and certainly for the technology space.
Consequently, I have to visit the VIX to gain a better understanding. Let's see:
What I see are higher lows and lower highs. In the chartist's form of understanding, and if I'm not mistaken, this looks to be a defining form of a bullish symmetrical triangle. Meaning the VIX could go up, based on chart patterns. When the VIX goes up, stocks go down.
Charting, I suppose, is based mostly on past behavior that has proven itself reasonably reliable over time. The question raised by that proposition is how reasonable. I looked for other indicators to spell out this issue.
I couldn't help but notice the yields for short term U.S. treasuries. Those yields have been resiliently high in anticipation of an increase in short term interest rates by the Fed, and have helped to flatten the yield curve. Because of this, we need to look at the charts and see what they say. Right below is a chart of the 5 year U.S. Treasury:
Next below is the 10 year U.S. bond, which really provides a baseline, being longer term, this chart provides dimension for our next diagrams:
Did you see the progressing drop in yield of the 10 year U.S. Treasury bond over 2014. In 2014, money liked the idea of low yield and safety. Most noted, however, is the drop in the 10 year yield at the start of 2015, steep. Does that drop in yield betray a deeper issue, perhaps of global implications?
This 10 year U.S. Treasury yield countervails, but eventually meets, sentiment in short term treasuries. Let's look again at the 5 year U.S. bond:
One can see how the five year treasury bond held its yield so well through 2014, but sacrificed so much ground at the start of this year. What do you suppose made the 5 year treasury lose so much yield? Or, stated otherwise, gain so much in value nearly over a month?
This question is confirmed in its need for an answer by taking a gander at the U.S. Treasury 2 year, we need to see:
This 2 year treasury bond increased in yield through 2014 like nobody's business. Only in the stock market "correction" of October, 2014 did it break its trajectory. Now, it has once more broken its trajectory.
My observation is that short term treasury yields fall when, in the short term, economic prospects look weak, safety is needed, and uncertainty exists. Such prospects result in a later than expected increase in rates by the Fed. Further, such increases in the price of short term treasuries typically are associated with stock market weakness. But, it is here that we are witnessing a divergence. Despite short term treasuries breaking their trend line, stocks are simply too volatile to touch.
Viewing treasury bond activity along with the activity in the stock exchanges, and VIX signals, one can expect a decline in markets. In fact, tomorrow will tell if the chart patterns for stock exchange indexes such as S&P and NASDAQ get further confirmation, or lost. The chart pattern for the VIX looks disturbingly resilient.
Overall, fundamentals need to be noticed, and these fundamentals seem to be leading indicators based on short term treasury yields.
Charting, I suppose, is based mostly on past behavior that has proven itself reasonably reliable over time. The question raised by that proposition is how reasonable. I looked for other indicators to spell out this issue.
I couldn't help but notice the yields for short term U.S. treasuries. Those yields have been resiliently high in anticipation of an increase in short term interest rates by the Fed, and have helped to flatten the yield curve. Because of this, we need to look at the charts and see what they say. Right below is a chart of the 5 year U.S. Treasury:
Next below is the 10 year U.S. bond, which really provides a baseline, being longer term, this chart provides dimension for our next diagrams:
This 10 year U.S. Treasury yield countervails, but eventually meets, sentiment in short term treasuries. Let's look again at the 5 year U.S. bond:
One can see how the five year treasury bond held its yield so well through 2014, but sacrificed so much ground at the start of this year. What do you suppose made the 5 year treasury lose so much yield? Or, stated otherwise, gain so much in value nearly over a month?
This question is confirmed in its need for an answer by taking a gander at the U.S. Treasury 2 year, we need to see:
This 2 year treasury bond increased in yield through 2014 like nobody's business. Only in the stock market "correction" of October, 2014 did it break its trajectory. Now, it has once more broken its trajectory.
My observation is that short term treasury yields fall when, in the short term, economic prospects look weak, safety is needed, and uncertainty exists. Such prospects result in a later than expected increase in rates by the Fed. Further, such increases in the price of short term treasuries typically are associated with stock market weakness. But, it is here that we are witnessing a divergence. Despite short term treasuries breaking their trend line, stocks are simply too volatile to touch.
Viewing treasury bond activity along with the activity in the stock exchanges, and VIX signals, one can expect a decline in markets. In fact, tomorrow will tell if the chart patterns for stock exchange indexes such as S&P and NASDAQ get further confirmation, or lost. The chart pattern for the VIX looks disturbingly resilient.
Overall, fundamentals need to be noticed, and these fundamentals seem to be leading indicators based on short term treasury yields.
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