Interest Rates Surprisingly Reverse While Everyone Watches Bitcoin

 | Dec 08, 2017 | 7:03 AM EST
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TLT

Have you noticed that Bitcoin seems to be all anyone talks about anymore? It's the most exciting instrument trading now so it almost feels as though it has sucked the life out of all the other markets, so much so that I heard so few even bother to note the minor reversal in interest rates on Thursday.

So let's go back to that chart of the iShares 20+ Treasury Bond (TLT) , an ETF to be long the bonds, I showed here just about two weeks ago. At the time I said I thought I was early in calling this a head and shoulders top and thought perhaps we needed a move akin to what we had in June where we gapped up for a day and then gapped down, leaving that island overhead.

Thursday's action wasn't quite that dramatic and sure it might make me dead wrong by the time the Employment number is out on Friday morning but it's a start. A higher high typically is what shakes out weak shorts or gets folks long at the wrong time, paving the way for a move down. I know I am wrong if this rockets over $128 now.

But there are also those two twin lows at $124. I don't think they can/will break immediately but if they cannot be broken in the next week or so then I would acknowledge defeat and cover the short. While we have the Employment number Friday we also have the Fed Meeting next week where they are expected to hike.

The reason this area is so key is that the shorter term rates, in this case we'll use the Five Year Note, are on the verge of breaking out. If the yield on the Five Year can clear those highs that have been in place for just about a year I think folks will notice, much the way they noticed when the Two Year Note's yield broke out.

So sure the stock market is important and Bitcoin has captured all the attention but I can't take my eyes off the bonds especially since the Utes broke that uptrend line earlier this week after having made a lower high. I think the Utes might bounce to test that line but my view is they are likely to fail up there

We've spent a great deal of time this week discussing the upcoming oversold condition so I won't harp on that anymore but I do want to touch on sentiment. The ten day moving average of the put/call ratio refuses to turn up. In fact it has now gone under 80%, the lowest it has been since 2014.

I have expanded the chart to show those three lows readings you see. Each eventually did see the market rollover. It's hard for me to believe there will be no effect on our current market but I would acknowledge that it took a few months before it mattered in 2014.

And since I think we do get some sort of Christmas rally it's hard for me to believe we'll do more than a short term correction between now and then. But this chart is worth paying attention to.

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