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Ahead of the FED-Eyes on Long Bonds TLT

March 19, 2024

Mish's Daily

By Mish Schneider

Over the weekend Geoff Bysshe wrote an Outlook.

“Long-Term Interest Rate Tipping Points

While most investors consider the level of interest rates to be the source of the “tipping points” that move stocks…

We’ve found that the velocity of interest rate changes is equally as reliable as absolute levels at identifying “tipping point” effects on other markets and trends such as stocks, gold, housing, currencies, the economy, etc.”

Geoff points out that “a move over 100 in TLT could lead to a surprisingly big move higher in bonds, and LOWER in interest rates.”

And that…” a pattern as coiled as this one has the potential to be equally as volatile if it “fails” or breaks down.”

Looking at the Daily chart of TLT, support at around $92 has held up.

While the price moving averages signify a death cross (bear phase), the momentum indicators in Real Motion show a caution phase.

Furthermore, TLT underperforms SPY, which we consider a risk-on factor.

In this chart, Geoff shows you an indicator that helps us anticipate the direction of the stock market based on the bond market.

This proprietary indicator is “intended to tell you when the stock market will likely react to the bond market in a meaningful way.”

If the histogram is red, interest rates are moving up (bonds, TLT, moving down) at a pace that is too fast and bearish for stocks.

If the histogram is green, then TLT is moving up (rates are going lower) at a pace that can be considered bullish for stocks.

Currently, the histogram is neutral.

Classically, we would expect stocks to fall if the bonds yields rise and TLT breaks 92.00.

The interesting part of this equation for us though, is how commodities factor in.

One would assume stocks will rise if yields fall and TLT rallies.

But what about the bullish trend that is in place for many commodity futures?

Yields fall too fast, and commodities will scream higher.

While stocks will like lower yields too, we are cautious about any substantial rise in inflation.

On the flipside, should yields rise, stocks will fall.

However, if commodities have legs based on supply and demand, they may not fall at all.

This is why we say long bonds are at a tipping point.

For more detailed trading information about our blended models, tools, and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.
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ETF Summary

S&P 500 (SPY) 510 pivotal

Russell 2000 (IWM) 202 if holds good sign

Dow (DIA) 385 support 400 resistance

Nasdaq (QQQ) 428 the 50-DMA support

Regional banks (KRE) 45-50 range

Semiconductors (SMH) 214 support 224 resistance to clear