The strength of Friday’s unemployment report sent the stock market right back to its highs. The official number coming in at 7% was the best we’ve seen in years. The strengthening economy should give the Federal Reserve Board an opportunity to begin removing stimulus from our economy. Removing stimulus from the economy should drive yields higher and bond prices lower. Accepting these things as probable brings up an interesting flaw in the reality of the application of the previous argument.
Ten year Treasury note futures did make a new low for the recent move down off the late October highs. However, the slide in price and corresponding rise in yield were nowhere near the magnitude of the stock market rally. The variance in the correlation between these two markets is exceptionally important when trying to examine the big picture relationship between fear and greed in the growth potential of the stock market compared to the perceived safety of the interest rate sector.
COMMERCIAL PLAYERS
Ten year Treasury note futures declined by about 8.5% from the April highs to the September lows on taper talk. Commercial traders have been solid buyers below 125 and ardent buyers below 124. Commercial traders have a very good track record of picking out intermediate moves in this market. In fact, it was the commercial trader group that tipped us off to the May selloff and the September bottom.
You can see those trades here. Based on the resiliency of this market on Friday as well as the large build in the commercial traders’ position, I believe the that my early November post, “The Fed is Cornering Itself,” is still in play. I’m actively looking for a turn higher in the 10 year futures to convince me to buy this market. I’ll place a protective sell stop at whatever the swing low turns out to be although, I’m pretty sure Friday’s low will be the number. This ought to push us up towards the resistance around 127′ 00.
= = =
Join the conversation on our Facebook page. We’d love to hear from you.
