With the exception of that spike in interest rates in early May the yield on the 10-Year Note has not been able to get up and over 3% for longer than a day or two. And even the May spike only lasted a week before it came crashing down.
I have been of the mind that we would see rates in a trading range where every time we got down in the 2.75% range we'd rally and when we got up near 3.1% (May's high) we'd sell off. But here we are stuck at 3% once again.
I note this because the Daily Sentiment Index (DSI) for the 10-Year Note is currently at 29. For almost all instruments we see that a reading under 10 means sentiment has gotten far too bearish. Yet when it comes to bonds, 20 seems to be the "too bearish" level. This is one reason I have thought that a breakout over 3% toward 3.1% would be a last gasp within the trading range. Because a move over 3% would surely take that DSI down under 20 in a hurry.
But am I asking too much? Is it possible that the lid really is this 3% zone? A small back-off from 3% followed by another push should get folks excited over a move higher than 3% but even I must admit this round number has been a brick wall.
In the meantime I saw an article in the Wall Street Journal on Monday that said small caps had outperformed large caps this year. They had so many statistics my head was spinning. But I went to inspect the chart of IWM relative to SPY and sure enough, the ratio is up since the calendar turned to 2018. The problem is that this article should have been written in June, not now. As you can see, now the small caps have underperformed for the last three months. And if you squint you can see there was a lower low on Monday.
My view has been that this ratio will make its way down toward the bottom of the range and when it gets down there we'll probably like small caps relative to big caps. When we look at the chart of the Russell itself we see it is trading roughly the same place it was in mid-June; it's been a giant sideways move. It now finds itself on this uptrend line.
I'd love to see it break the uptrend line because I think we might see a sentiment shift if that happens. Just a week ago folks were more fearful as the put/call ratio rocketed up to 117% and 115% respectively. Now after a day like Monday it sits at a much more neutral 92%. Has everyone become that complacent in just one week?
Finally, I don't think I have ever seen Nasdaq's Oscillator refuse to lift while Nasdaq rallied, not to mention it collapsed from a higher high. It is oversold.
