Market Threesome: Breadth, Bonds and Utilities

 | Feb 28, 2017 | 6:00 AM EST
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I actually heard a guy on television Monday state that he wants no details at all when the president gives his speech to Congress on Tuesday. So I suppose that is what it has come down to, folks prefer the market rise on "what ifs" rather than on "what is." Which you have to admit is the ultimate expression of "buy the rumor," but please never give me the news so I don't need to sell it.

In any event, we saw breadth lead for the first time in a week. This has become a pattern, along with the rally in the last hour of trading. Breadth lags for days on end and then we get one solid day of good breadth, enough to keep the ship from listing too far to one side, and then it goes right back to slipping. What it manages to do is keep the market with no volatility and the market is simply bobbling along like a buoy in the water.

In the meantime, we need to revisit the chart of the yield on the five-year note. When we last checked, I noted that 1.8% was support and I expect a rally, but as long as the rally stayed under 1.9% I looked for another trip back to 1.8%. We rallied to 2% and still got the retreat to 1.8%. And Monday saw a bounce from that support level again. That's the red line.

Now look at the green line. That's 2%, which has been a lid on the five-year note for the last two months. I will confess that I am not sure whether the rally in yields that we got on Monday will be short-lived. I also do not know if we'll see yields over 2%. But I do know the red line must be watched carefully. If it breaks, it will be a considerable change in the bond market from last summer when rates began their march higher.

This brings us to the chart of the utilities, of which I have been a fan since December. I think they have reached resistance and are desperately overbought. Yet for the first time in a long time, bonds were down pretty hard (see the rise in yields in the chart above) and the utes gave back very little on Monday. I would take some profits in the utes now. But I can tell you that if they go sideways up here to digest the gains of last week rather than pull back hard, they will look good again and that should be a tell for the bonds. Once again, my eyes will be centered on the utes because they have been a strong tell for rates.

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