JUMP IN GLOBAL BOND YIELDS SENDS BOND AND STOCK PRICES SHARPLY LOWER -- LONG-TERM CHARTS CONTINUE TO SUGGEST A BOTTOM IN TEN-YEAR TREASURY YIELD AND A BOND TOP -- S&P 500 FALLS BELOW 50-DAY AVERAGE IN HEAVY TRADING -- VIX JUMPS 40% TO TWO -MONTH HIGH

JUMP IN BOND YIELDS WASN'T A BIG SURPRISE... This week's jump in bond yields started on Thursday when the ECB failed to extend its bond buying program. That helped push the 10-Year German bund yield into positive territory for the first time since July. UK bond yields jumped sharply as well. Japanese yields had already started to climb on fears that the Japanese central bank might be rethinking its stimulus program. My August 3 message carried the headline: "Jump in 10-Year Japanese Bond Yield May Be Hinting at Treasury Yield Bottom". That message also pointed out that "bond proxies" like staples, telecom, utilities, and REITs were starting to underperform which hinted at lower bond prices. It also noted that money was starting to flow into financial stocks which is usually an early sign of higher bond yields. Last Saturday's message showed the 10-Year Japanese yield reaching a five-month high with German and UK yields bouncing as well. Chart 1 shows the 10-Year Japanese yield at a six-month high, with German and UK yields at a two-month high. The 10-Year German bund yield moved into positive territory (0.01%) for the first time since July. I expressed the view in August that global bond yields might be hitting bottom. I feel more strongly about that view, especially regarding Treasuries. Let's review a couple of charts posted in August.

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Chart 1

10-YEAR YIELD IS IN SUPPORT AND OVERSOLD... This August 3 headline is repeated here along with its updated accompanying chart. The weekly bars in Chart 2 show the 10-Year Treasury Yield ($TNX) bouncing off major chart support near its mid-2012 low (see line and circles). That's a logical chart spot for bond yields to stabilize. In addition, its 14-week RSI line (bottom box) started bouncing during July off oversold territory at 30. The last two times that happened was during the first half of 2015 and 2012. A move above 50 in the RSI line would suggest stronger upside momentum.

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Chart 2

TREASURY BOND PRICES LOOK TOPPY... This August 3 headline is also repeated here along with its updated chart. If bond yields are bottoming, bond prices should be topping. And that's what the chart shows. Chart 3 overlays a 14-week RSI line over the weekly bars of the Treasury Bond 20+Year iShares (TLT). The chart clearly showed then (and still does) a big negative divergence between the red RSI line and the rising price action. It's gotten worse since then. The RSI line has undercut its spring low and has fallen to the lowest level of the year. That signals more downside momentum. So does the negative divergence in weekly MACD lines (bottom of chart). The negative divergence described in August has also gotten worse. The two lines have turned negative for the first time in a year. That's bad news for the bond market, and maybe even for stocks.

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Chart 3

RISING RATES RATTLE STOCKS... Stocks sold off hard on Friday around the world, and in heavy trading. And for good reason. Historically low bond yields around the world (and extremely loose monetary policies) have been a driving force behind the rally in stocks for several years. Any hint of bond yields starting to rise could change that. The daily bars in Chart 4 show the S&P 500 falling below its 50-day average on Friday on the heaviest trading in more than two months. The first line of support is marked by the flat line drawn over its November/June highs. I suspect that won't hold, which could lead to a possible test of its rising trendline drawn under its February/ June lows and/or its 200-day average (red arrow). The fact that we've also entered the seasonally dangerous autumn period between September and October is also a concern. A lot more caution is warranted.

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Chart 4

VIX INDEX CLIMBS TO TWO-MONTH HIGH ... Everyone was complaining over the summer months about quiet trading conditions and historically low volatility. In hindsight, that wasn't so bad. Much worse is heavier trading with rising volatility. Chart 5 shows the Volatility (VIX) Index jumping 40% on Friday to the highest level in two months. A rising VIX is associated with lower stock prices. Historically, a move above 20 is usually required to signal a more serious stock selloff. The fact that Friday's percentage gain was one of the biggest of the year, however, is not something to brush off. That adds to the need for more caution until the calendar turns more friendly and/or we get more clarity from central bankers. Right now, I'd settle for putting a muzzle on all of them.

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Chart 5

CHARTCON IS ONLY TWO WEEKS AWAY ... ChartCon 2016 is only two weeks away. My presentation scheduled for Saturday, September 24 is entitled "Why Intermarket Analysis is Critical to Understanding Today's Markets". This week's global action is a good example of why that's so. I hope you take the time to join us. And you won't have to leave home to do it.