The 10-yr Treasury Yield plunged as Treasury bonds surged on the heels of a new nomination for Treasury secretary. These moves lifted small-caps, banks and homebuilders. Banks have been leading for some time and small-caps started their move last week. Homebuilders held out for interest rates and got their catalyst on Monday. The only concern here is that the move in Treasuries is a knee-jerk reaction. Follow through would confirm the validity of these short-term reversals.
The first chart shows the 10-yr Treasury Yield ($TNX) in the top window and the 7-10 Yr Treasury Bond ETF (IEF). $TNX is the yield multiplied by 10. I used this version because it is updated in real time, as opposed to end of day. $TNX and IEF are mirror images. The 10yr Yield is within a large falling channel and the 7-10Yr T-Bond ETF is within a large rising channel. The yield falls when the bond price rises.
These two caught my eye because they reversed the swings within their respective channels. $TNX fell sharply to reverse the upswing, which extended from mid September to mid October. This means the short-term trend (down) is now aligned with the long-term trend (down). On the flip-side, IEF surged and reversed its downswing. This means the short-term trend (up) is now aligned with the long-term trend (up).
Small-caps reacted to the plunge in yields with a surge the last three days. Actually, small-caps started moving higher before the 10-yr Treasury Yield surged and we noted this in the Chart Trader report on Thursday before the open. Moving to this week, the Home Construction ETF (ITB) also caught a strong bid as the 10-yr Treasury Yield fell on Monday. ITB gapped up and surged 5% on Monday.
Next we will analyze the charts for ITB and five home builder stocks. This members-only report covers the long-term trends, medium chart setups and the recent momentum thrusts.
Click here to subscribe and get immediate access.
Members can access the report here.
