Subscribers should be alert that the 5-year YIELD ($FVX.X) has broken to new lows and have just recently violated the March 22nd low YIELD of 4.353%. This should have equity traders attention at current levels. We continue to monitor the bond market for the first sign of a turnaround for stocks, but this action should continue to have traders acting rather defensive in their accounts.
5-year YIELD chart - last 11 months
I consider the 5-year Treasury Yield ($FVX.X) as the "safest" of the three major bond YIELDS we keep an eye on. The "safety" comes from the shorter time maturity related to the 10-year ($TNX.X) and 30-year ($TYX.X). Today's recent violation of the March 22nd gives hint that the MARKET is more defensive today than they were on March 22nd.
On March 22nd, the NASDAQ Composite traded a session low of 1,794. Current trading levels for the NASDAQ Composite (COMPX) are at 1,836. Even though the 5-year YIELD did turn higher after March 22nd, the NASDAQ Composite did follow through for approximately 9 sessions to a low of 1,619. With mutual fund inflows and historic lows, I am now leaning toward a potential retest of lows for many of the major market averages with stocks that have been weak to suffer the greatest harm.
I will stress! Traders had better be keeping an eye on these bond YIELDS as they will most likely give first hint to a potential market recovery. Many indicators are approaching oversold levels and at some point a snap back rally should occur. Traders can be shorting stocks, but I'd concentrate on stock like MMM that have been in a base of consolidation, where a breakdown can give you the "umph" to the downside that you're looking for, while a rally can still find sellers close by and help keep the trade under control should we be near a bottom. Traders that attempt to short/put stocks that are "oversold" and far from a level of resistance can suffer a snapback rally.
Just as stock selection has been critical on the bullish side, I'd also say that at current levels, stock selection is critical on the bearish side.