Was it just over a week ago that inflation was a worry and interest rates were going to zoom upward forever? Well, OK, the big fear on rates came back in February and March. But the inflation chatter went overboard just over a week or so ago.
First we had the daily price quoting of lumber. Then it was corn. And beans. And let's not forget steel. And iron ore. Oh, and copper, too. I'm probably forgetting one or two commodities, but you get the picture. Then after the frenzy was over came the Barron's cover on inflation.
You might recall back in March the Daily Sentiment Index (DSI) for bonds got to single digits. I fussed over it at the time and you can see that was the peak in interest rates. This chart of the yield on the Ten Year Note shows that peak in March.
It has been my contention since that initial decline in rates after that extremely low Daily Sentiment Index reading that bonds were in a trading range. For the last two months I have been correct. Is that about to change?
Yields are getting awfully close to that 1.55% level that they have not breached since early March. And, now, I have started to see folks note that "inflation expectations had gotten ahead of themselves."
I will simply point out that I don't see much hysteria about bonds now, but that can change if that 1.50% level is breached. So, I feel it is my duty to report that the DSI for bonds is now at 80. I think a break of that key level could shoot that DSI up into the 90 area. And readings over 90 are extreme.
Interest rates are worth watching in the coming days.
But of course the lower interest rates are one reason I thought folks would gravitate toward the growth/tech stocks. And in the either/or market, the tech stocks rally at the expense of everything else. That's why breadth has been so mediocre.
Just take a look at the McClellan Summation Index, which tells us what the majority of stocks are doing. As a reminder, the S&P at mere points off an all time high and the Summation Index is still heading down. It needs a net differential of positive 600 advancers minus decliners to stop going down and obviously more to turn upward.
But let's get back to interest rates again. We have looked at the utilities a few times in recent weeks, as they have come off their massive move they had this spring. It has been my contention that they ought to correct down to this area around $880. They moved in the opposite direction from bonds on Tuesday, but I suspect on this trip down I'm going to start to get interested in the "Utes" again.
I would not be surprised to see the stock market rally on Wednesday but know that as we get later in the week we'll be back to a short term overbought reading.
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