TEN-YEAR TREASURY YIELD MAY BE BOTTOMING -- THAT WOULD HELP BANKS AND OTHER FINANCIALS

TEN-YEAR TREASURY YIELD MAY BE BOTTOMING... A combination of technical factors suggests that the recent decline in bond yields may be at or near a bottom.   Chart 1 shows the 10-Year Treasury yield starting to find support near its red 200-day moving average which usually acts as a support line during downside corrections.   In addition, its 14-day RSI line in the upper box is bouncing today from its oversold line at 30.  Today's gap higher may be another sign that the downside correction in yields may have run its course.   Today's rebound in bond yields may also be contributing to a strong rebound in stocks.   Ten of eleven sectors are in the black with the biggest gains in financials, materials, energy, and industrials.   Financials in particular may be benefiting from today's jump in bond yields.

BANKS AND FINANCIALS ARE CLOSELY TIED TO YIELDS... Financial stocks are heavily influenced by the direction of bond yields and the yield curve.   Falling bond yields have caused the yield curve to flatten which is normally negative for financials.    The solid line overlaid on the price bars in Chart 2 plots the XLF/SPX ratio declining since the start of June which had a lot to do with falling bond yields.  Chart 2 shows the Financial Sector SPDR (XLF) bouncing sharply today.  It needs to clear its 50-day average to regain its uptrend; but today's rebound in encouraging.  Its 14-day RSI line in the upper box is close to rising above its mid-50 line which would be a positive sign that short-term momentum is improving.   Today's rebound in bond yields may also explain why financials are today's strongest sector.     An upturn in bond yields could prove beneficial to financial stocks, and banks in particular.

BANKS LOOK OVERSOLD... Chart 3 shows the S&P 500 Bank SPDR (KBE) in a downside correction.   The green line overlaid on the price bars shows a close correlation between the falling KBE and the 10-Year Treasury yield.   Today's jump in the KBE coincides with the rebound in bond yields.   Which further suggests that an upturn in bond yields could prove beneficial to bank stocks.   In addition, its 14-day RSI line in the upper box is forming a small "double bottom" near its oversold level at 30.  That's another sign that the downturn in bank shares may have run its course.