Wednesday's Market Minute: The Big Charts Are Breaking Bearish

Last week, I wrote about how the FOMO trade was ready to break though if a few key macro charts went the way of risk-on speculators. The charts aren’t going their way, and stocks have taken a turn for the worse.

The key charts are the U.S. dollar and the 10-year Treasury yield. They traded in lockstep for much of the past two years and as inflation peaked last fall, the two began to slide, with the dollar’s decline significantly outpacing that of the yield. When Jay Powell struck a seemingly more dovish tone at the start of this month, the dollar hit 10-month lows. Interest rates have shown more resilience.

They, too, dropped when Powell emphasized disinflation over loosening financial conditions, but not to the same extent as the greenback. The 10-year touched a five-month low, but quickly ripped back higher after that shock employment report, and hasn’t looked back since.

On Tuesday the 10-year traded above 3.9% for the first time this year and above the high from December. After last week’s worryingly sticky inflation data and some hawkish rhetoric from Fed speakers, the trend for higher yields may well be back on. If the dollar is going to follow, it has a long way to catch up.

And so stocks are under pressure. Equity indexes have been topping out at increasingly lower highs since the rally after Powell spoke on Feb. 1, which is the natural start for a downtrend. The uptrend line of the bear market rally that’s been happening since October is somewhere around 4,000. If we start breaking that with conviction, a test of the old lows is likely in order.

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