Market Milestones: The Names Bond

[Image] Good morning , I hope you got your bear claws out after last week’s Market Milestone, because there was some slicing and dicing to be done this week. The SPY tried for six full days to break through the overhead resistance at $437.00 and could not get it done. Wednesday’s gap and go into a one black crow let the bulls know to look out below. Thursday saw follow through across the market as bears gained full control. SPY Daily [Image]( [Image] SpaceX is not the only one launching rockets into space over the last week. The Fed has been working diligently around the clock for months now and they have finally managed to launch bond yields through the stratosphere as they plot the course to the moon. Ten-year yields hit 5% for the first time since 2007 meaning that ten, twenty and thirty year yields are now at, or above 5%. TLT which tracks the 20-year treasury bond, hit new lows not seen since 2007 and is only 2.5% away from the ETF’s all-time low. TLT had record volume on Thursday surpassing the previous record holder that TLT put in just one day before the 2020 all-time high. This could mean that TLT is getting close to a bottom, but caution must be heeded when catching any knife. TLT is now halfway into the “buy zone” we charted at the end of September. TLT Monthly [Image]( [Image] The classic 60/40 portfolio was designed with 60% equities and 40% bonds. One reason for this is the historical negative correlation between equities and bonds. This correlation remained intact during a low inflation environment where rates were generally decreasing or holding steady. We saw a swift end to that negative correlation in 2022 when both the equities market and the bond market sold off sharply. Bonds have a fixed yield and their values move inversely from their yields. If bond yields go up, like they presently are, bond values go down. This is because market participants want the bonds with the new higher yields instead of the low yielding old bonds. This is in part what caused the banking collapses earlier in 2023. Banks bought billions of dollars in bonds when interests rates were less than 1% and the value of those bonds cratered when the Fed started jacking up interest rates. As long as the bonds were held to maturity, the banks would have theoretically been fine. However, bank runs and other conditions made it so they needed to sell at massive losses, causing the bank failures. If you are a fan of the 60/40 portfolio, locking in yields of over 5% looks pretty enticing. The reason equities may fall during higher inflation is not as straight forward. What we are seeing currently is rising rates coupled with economic and geopolitical risk and uncertainty. This leads to a risk off mindset causing investors to rotate into safer assets. When everything is under pressure, finding the “safe” assets is not that easy. Cash is one safe haven that people flee to during times of uncertainty and we have seen the DXY rip higher for the past 3 months. This DXY bull run has correlated perfectly with the top and subsequent sell off in the QQQ. As long as yields and the dollar are rising, equities are going to be under pressure. QQQ Daily [Image]( DXY Daily [Image]( If you made it this far, I appreciate it. [Let me know your thoughts](mailto:support@thetradersplan.com). Are you locking in some 5%+ yields on bonds and bills right now or do you think we still have higher to go? Strive On, Yates Craig, RLT & TPN Market Analyst Disclosure: You are responsible for your own trading decisions. ALWAYS, do your own research before investing in any of the above securities. This is not a solicitation to buy/sell ETFs or securities. NEVER invest money in ETFs or stocks that you can't afford to lose. You can lose all of your capital by trading any securities mentioned. These ETFs/securities are very volatile and gain and lose value quickly. We reserve the right to freely trade in any mentioned ETFs or securities. We are not compensated by any mentioned companies. We trade ETFs and securities based on our opinion of intrinsic/possible future value only. We are not registered investment advisors, so always do your own research before buying any securities. Unable to view? Read it [online]( If you no longer wish to receive mail from us, you can [unsubscribe]( Sent from: Real Life Trading in Nashville TN 37221