STOCKS ENDING WEEK ON THE DOWNSIDE -- 10-YEAR TREASURY YIELD TRADES ABOVE 4% -- THAT'S HURTING HOMEBUILDERS

NO UPSIDE FOLLOW-THROUGH...Stocks are being sold again on Friday following Thursday's impressive upside reversal.    The daily bars in Chart 1 show the S&P 500 reversing upward on Thursday after falling to another bear market low.  And it did so on heavy volume.   The fact that the upside reversal took place after  a hotter than expected inflation report was also surprising.   Core inflation excluding food and energy rose 6.6% in September which was the biggest increase in forty years.   That should keep the Fed on its aggressive path to higher interest rates.   While a case can be made that stocks are somewhat oversold, rising interest rates should limit any short-term bounces.  Chart 1 also shows the SPX still trading below its early October peak at 3806 and its 20-day moving average (green line).   Both resistance points would have to be exceeded to signal a short-term bottom.   Rising bond yields are weighing heavily on stock prices.

10-YEAR TREASURY YIELD TESTS 4.00%... The daily bars in Chart 2 show the 10-Year Treasury yield trying to close above 4.00% for the first time in more than a decade.   The monthly bars in Chart 3 give a longer-term perspective and show the TNX nearing the highest level since 2008.   That's not good for bonds or stocks.  The rise in bond yields has also pushed mortgage rates to the highest level in two decades.  That's hurting the housing market and homebuilding stocks which have been one the weakest performers this past week and for the entire year.

HOMEBUILDERS HURT BY RISING MORTGAGE RATES...Homebuilding stocks fell -5.8% this week making them one of the weakest parts of the market.   They've also lost -36% for the year.   That underperformance is due mainly to rising mortgage rates which are closely tied to the upward trend in bond yields.   The weekly bars in Chart 4 show the U.S. Home Construction iShares (ITB) peaking at the end of last year just as the 10-Year Treasury yield (green bars) started rising sharply (see circles).   And they've been trending in opposite directions since then.    That's bad news for the housing industry and another sign of weakening in the U.S. economy.  None of which is good for stocks in general.