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Market Recon: Please Don't Call This a Bond Yield Rally

"All I've ever wanted is an honest week's pay for an honest day's work." -- Nat Hiken

Lions, Tigers, and Bears ... Oh, My That was as broad as an equity market beat-down gets; 11 sectors in the red. The S&P 500 saw its worst day since May. The stock market gets the headlines, but this is really not so much about stocks, is it? This turbulence in the force is being generated in the bond market. Not to mention North Korea, and I don't see that particular negative passing quickly. The U.S. 10-year now yields as much as it has at any point over the last eight weeks. German Bund yields are at year-and-a-half highs. Yields have risen across Europe. Even Japanese paper has been slapped around a bit, though the Bank of Japan has been far quieter in public than have speakers from other central banks. I just have one request. Please just don't call this a yield rally. That drives me nuts. There is nothing about this that smells like a rally. Bonds have been selling off, and in response to the expected headwinds that higher interest rates present, so have stocks. Period.

The most recent catalyst for harvesting some sovereign debt came from the ECB meeting accounts, which were rather hawkish. The ECB will meet again on policy in two weeks, about a week ahead of the FOMC. I will tell you this, they better do more than shrug their shoulders at that meeting. German 10-year paper yielded more than 0.55% yesterday, which was an 18-month high, and those yields have stretched higher this morning. Then there was the weak-ish auction for the French 30-year bond. Coordinated tightening across the globe? Maybe. Don't they all eventually mimic each other anyway? If not coordinated, then correlated tightening across the globe? At least correlated talk. No backstop. No Bernanke/Yellen put. No Draghi put. The return of "normal" volatility? What was once considered normal will seem severe to less seasoned traders. Will all of these tough-talking central bankers get to where they are all actually tightening policy at the same time? They will all at least get to the doorstep, and that will be enough to cause continued volatility. The VIX is off the mat, and it's probably going to be throwing both fists.

The Roadmap

The broader equity market's trend is still intact. Just barely. The rising yields have proven to be a catalyst for an equity market scalping. The S&P 500 closed last night at 2409. The 50-day SMA (Simple Moving Average) currently stands at 2413. Now, before running down the street in front of your home, warning the neighbors, this line has been pierced before, as recently as last week, and in fairly severe fashion as recently as mid-May. The 14-day RSI (Relative Strength Index) is running at its softest level since that mid-May selloff, but has not yet approached an oversold reading. The MACD (Moving Average Convergence Divergence Oscillator) gave us the bearish crossover that we all watched for on...


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