Lots of People Beating Their Gums About Bonds

 | Jun 07, 2017 | 6:00 AM EDT
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Tuesday brought us something different. In several areas. Before we get to stocks, let's talk about bonds.

As you know, for quite some time I have been in the camp that says rates are going down. On Tuesday, we not only saw the lowest rates for the 10-year note so far this year, but the lowest since the election. There is a measured target near 2%, so I think we're getting close to being late in this decline. Maybe we don't even tag 2%, we only get close.

What is important to me is that on Tuesday it seemed like Realization Day for bonds. How many people do you know who have been bullish on bonds (price up, yields down)? Very few, I imagine, because the Fed is hiking and everyone has been bearish on bonds for years. No one ever gives them a hard time for being wrong, do they?

So what did we see on Tuesday? A whole lot of rationalizing about why rates are where they are. One person says it's because global rates are low. Another says it's fine because it's simply a chase for yield. Someone else says it's just another asset that is being bought. And they all have fancy charts to show us "why" yields are here. Yet none of these folks loved bonds in March or even a month ago when this leg started.

Typically, we see the rationalizing about why we have moved to this point when we are getting late in the move, not early. Rather than talking about why rates are low, shouldn't folks be talking about the potential for a June hike by the Fed? That's what they did in March, which is probably why rates peaked then, since no one had any reasons for rates to go down. Now they have a list of reasons, none of which is that the economic numbers might not be so hot. I might not have been at my desk last week, but I saw the disappointing employment number.

There was another change in the market Tuesday. Small-caps outperformed large-caps, namely Nasdaq. I have shown this chart quite often of late because the steepness of the decline in the Russell 2000 relative to Nasdaq has been breathtaking. On Tuesday, we saw the first higher low in the ratio in two months.

It only lasted two weeks in April, but a change is a change. And to me this is a welcome change. There was another change. For seven of the last eight trading days, net volume on the NYSE has been negative. I wrote about this in yesterday's column. Tuesday saw the S&P solidly red while net volume was flat. That too is another pleasant change.

The put/call ratios remain very complacent, even during Tuesday afternoon's selloff. But the overbought reading from Memorial Day is finally pushing down, heading us toward an oversold reading again. I will have more on that as we get closer to that oversold condition. Perhaps we will see a change in sentiment as we get closer to returning to oversold. If we do, that would be a welcome change, too.

For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.

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