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Bonds and Banks

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Not much has changed in the markets, but bank stocks are trying to make a significant move.

S&P Banks Index Daily Chart

The S&P Banks Index has been bouncing around between 630 and 673, but has remained above the March up trend. The 50-day moving average is above the 200-day, and both continue to slowly climb. Currently the index is on a seven-day run that has put the index back above the 50-dma, and testing May highs. Of course the index looks overbought, suggesting that this resistance level could once again hold. Relative strength continues to rise compared to the S&P 500, but that trend is being tested.

U.S. Treasury Bonds Daily Chart

After completing a head and shoulders bottom, U.S. Treasury Bonds futures (US01U), which move inversely to yields, have stalled around 103'. On Tuesday traders started buying bonds, and pushed prices up to 104'. Things were looking bad for equities, as bonds kept attracting more money, but today's better than expected unemployment numbers has caused bonds to sell off. Tomorrow's unemployment report might be the catalyst to keep the selling in bonds going. Bullish stock traders would like to see the sell off reject the head and shoulders bottom buy penetrating the neckline at 102 '19 (ignore retracement decimals). There is still plenty of support below, but each dollar that comes out of bonds can be used to buy stocks.

Jeff Canavan
Assistant Analyst
www.premierinvestor.net

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