SPIKE IN TEN-YEAR YIELD PUSHES STOCKS LOWER
TEN-YEAR BOND YIELD HITS 16-YEAR HIGH...Recent market messages have been focusing on the upturn in energy prices which threatened to boost inflation pressures and put upward pressure on bond yields. Those same messages have shown the 10-year Treasury yield nearing an upside breakout. That breakout took place this week a day after the Fed left interest rates unchanged, but warned that interest rates would stay higher for longer. Chart 1 shows the 10-Year Treasury yield spiking to a 16-year high on Thursday. The dark area along the bottom of the chart shows that the latest upturn in the TNX coincided with an upturn in WTIC crude oil. That helped make energy stocks the market's strongest sector.
NEXT TARGET... Chart 2 shows the next upside target for the 10-Year Treasury yield at its 2007 high near 5.00%. The combination of rising bond yields and rising energy prices is normally bad for stocks. Right on cue, stocks sold off.
WEEKLY SPX CHART LOOKS TOPPY... The weekly S&P 500 bars in Chart 3 shows the SPX falling to a two-month low on rising volume. Its surrounding indicators also show weakness. The 9-week RSI line in the upper box has fallen below its support line near 50 which shows loss of upside momentum. At the same time, its weekly MACD lines in the lower box have turned negative for the first time in a year. That raises the technical odds for more selling to come. The next downside target for the SPX is its 40-week (or 200-day) moving average (see red arrow). What it does from there will help determine how serious this week's downturn is likely to be.
