The buck fell this week, dropping 1.22 [-1.08%] to 111.98. Most of the damage happened on Friday. The candle print was bearish, and the buck closed back below its 9 MA – although it remains above the 50, which is where it has spent most of its time during 2022. Buck remains in an uptrend, at least for now anyway. I’d have to see a close below the 50 before I’d call it trend-change bearish.
SPX rallied strongly, up 4.74%, printing a strong swing low candle pattern, but not quite managing to return to an uptrend. Half of the gains came on Friday. The sector map was bullish: energy +7.65% led, along with tech +6.06%, while utilities +1.83% and staples +2.00% did worst. Is this “the low”? Well, crappy debt (JNK) doesn’t look nearly as good; it did rally [+1.17%] but the chart just doesn’t look nearly as nice. And Wolf has a nice piece on the FINRA Margin debt and how it continues to drop – which is usually a bearish signal (Source – Wolf). Plus – as the costs of short-term money rise, using margin debt to fund your trades is less and less rewarding. Rising short-term rates could cause equity markets to move lower due to near-automatic unwinding of some of those margin loans. Want to borrow money at 4% (3-month T-bill is 3.99%) to fund a trade? It better be a good one. The 3-month was yielding (checks notes) just 0.08% at the start of 2022. Now 3.99%. Before: $1M for a year = $800. Now $1M for a year = $39,900. OMG sell!! Rising short rates drives declining leverage.
The 10-year treasury yield rose 24 bp this week, to 4.21%. It was last yielding this much back in 2010, so this marks a 12-year high. Based on the breakout above the blue line, which happened back in July, and has done nothing but get worse. I’m gonna go out on a limb and suggest the 40 year bond bull market is now over. (Steadily falling rates = bull market for bonds; breakout in rates = that’s now over).
Here’s a chart showing yields for different treasury bond durations. See how the 1-year yield (red) jumped above the 10-year yield (blue) back in July? That’s called a yield curve inversion, and it usually happens during recessions.
by sand_puppy 
