Risk Appetite Indicator Not Confirming Recent Market Move

Along with several other indicators, I use the ratio of high-yield "junk" bonds (HYG) to TLT to help gauge the risk appetite of investors, i.e. is the current market environment risk-on or risk-off? When the HYG:TLT ratio is trending down, it infers a risk-off bias is taking hold and is generally bearish for equities.

Source: Stockcharts.com

The chart above shows the S&P 500 in the upper inset and the HYG:TLT ratio in the lower inset. Note that with the market's recent attempts to make new highs, the HYG:TLT line has not confirmed this move, instead continuing to head south. 

Such a non-confirmation or divergence has proven to be something worth keeping in mind. Bearish divergences in 2007, 2010 and 2011 were quite timely as the HYG:TLT ratio did not confirm the trend in the S&P 500. Also, the bullish divergence in late 2008 / early 2009 suggested that the stock market's vicious decline was coming to an end, with the HYG:TLT bottoming in December 2008 and making a higher low in March 2009.

Will The Real US Dollar Please....

One could argue that the DXY Index is perhaps the most common representation of the US Dollar (USD). However it's not the only representation, and depending on which one is chosen can often dramatically alter one's view of the USD.

The DXY measures the performance of the USD versus a basket of six foreign currencies, deriving a geometric mean based on preset weights. Currently the currency with the largest weight (by far) in DXY is the Euro at a whopping 57.6% weight. The currency with the next largest weight is the Yen at a much more meager 13.6% figure.

An alternative measure for the USD is the Fed Reserve's trade-weighted representation (USTWBROA on Bloomberg). It offers a depiction of the USD that takes into account a much broader basket of currencies, currently comprised of 20+ regions and/or countries. And the weights are flatter with the largest weight, China's Yuan, set at 20.8% and the next largest weight, the Euro, at 16.2%.

Over time the DXY and USTWBROA have tracked fairly closely, but as shown below, that's not been the case since the latter half of last year.

Source: Bloomberg

Whereas the DXY broke down through a rising trend in the 3Q of 2013, the USTWBROA has maintained its steady ascent within the rising trend. Obviously the strength of the Euro and the variance in composition and weights of the two USD representations have much to do with this fairly recent disconnect. But depending on which measure one chooses to portray the USD, quite a different view can emerge. In the chart above, the DXY appears bearish and yet the USTWBROA appears quite the opposite. Food for thought.

Market Outlook and Materials vs. Consumer Cyclicals

First, apologies for the recent lack of blog posts, but I've explained in the past my current situation (ongoing job search due to my employer shutting down). With regards to the market, frankly I haven't had much to say since my posting on February 11th. On February 3rd, when the S&P 500 was around 1780, I wrote that I wanted to see at least two things occur to confirm a bottom, 1) the S&P 500 put together three consecutive up days off this low or one significant up day with a bar/candle range spanning 15-20+ points, and 2) the MACD to trigger a buy signal, i.e. for a bullish crossover to occur in the 12- and 26-day EMAs, also shown with a positive histogram. Both of these conditions were achieved on February 11th, see chart below (orange line).

Since February 11, the S&P 500 has risen 4.3% and is fast approaching the upper-bounds of an ascending channel (red lines). Longer-term the market remains in a solid uptrend, however several oscillators currently reside in overbought territory and I would expect this rally to slow down, consolidate sideways or even pullback from these levels.

The weekly S&P 500 chart below also suggests an interim peak may be at hand:

Despite the fact the S&P 500 is up YTD, attaining a new all-time high, note that the weekly MACD has yet to confirm this rise in the Index, instead remaining in a downtrend and establishing a bearish divergence. As shown in the chart above, a few negative divergences have developed over the last few years and all eventually resulted in a market pullback or correction, some more severe than others. 

One of the more interesting developments YTD is the erosion in relative performance of consumer cyclical stocks (I wrote about on January 21 and February 14) and the resurgence in what has been a longtime laggard, the materials sector.

The weekly chart above plots the relative performance of the XLB vs. XLY (or Materials SPDR vs. Consumer Discretionary SPDR). In late December, the XLB:XLY relative price successfully broke through a two year declining trend line and XLB's outperformance over XLY has continued into 2014. 

Will this trend continue? A significant factor will be the strength of the US dollar.

The weekly chart above shows the relative performance of the XLB vs. S&P 500 (lower inset) and the US dollar (USD, upper inset). It's fairly plain to see an inverse relationship exists as the relative return of material stocks tends to fare better when the USD is weak and declining. 

Regular readers know that I turned bearish on the USD last October and I have yet to see a compelling reason that warrants changing that stance. The US dollar is down since early October and the weekly chart above shows the USD has been carving out a descending triangle formation of sorts since the 2Q of last year. If the USD breaks to 79 or worse, it would signify a clear breach of support as indicated by the gradually ascending trend line. I would also point out the developing two-year bearish divergence between this modestly rising trend line (higher lows) and the downward trending MACD indicator, which also resides below zero. Finally, the Death Cross condition remains in place for the USD, i.e. the 50-day MA is below the 200-day MA.

(Source for all charts: Stockcharts.com)

Emerging Markets Remain Relatively Submerged

Emerging markets as a whole just can't seem to get out of their own way. The MSCI Emerging Markets ETF (EEM) is down 6% YTD and has been underperforming the S&P 500 for years. What is the current outlook?

Ultimately I believe a view on emerging markets in isolation is not enough and instead should be framed emerging versus developed, or as more of an asset allocation decision. Should I be repositioning more funds out of developed (S&P 500) and into emerging markets (EEM), or vice versa?

I have found that over time the relative return of industrial metals versus a commodity index (CRB) does a very good job at leading the relative performance of the EEM vs. the S&P 500. The relationship makes sense since emerging markets tend to have a high sensitivity to global economic activity, and industrial metals tend to have a higher sensitivity to global economic activity than most other commodities.

Source: Stockcharts.com

The weekly chart above shows five signals (2 buys, 3 sells) since 1999, triggered by trend line breaks in the industrial metals vs. CRB relative return (lower inset). 

Note that a relative-return buy signal for EEM has yet to be triggered. Therefore, based on this one indicator, better to remain overweighted in developed (S&P 500) and underweighted in emerging.

Consumer Discretionary: Pain Has Been Wealth-Indifferent

A few weeks ago I asked the question, "Is the amazing run for consumer discretionary stocks coming to an end?" Based on the hourly chart below, the jury is still out on that question.

The XLY continued to decline into earlier this month, underperforming the S&P 500 as shown in the upper inset. Since February 3rd, the XLY has bottomed and risen by about 6%, however note the relative performance. Initially the ETF outperformed sharply when rallying off the low, and yet since last Thursday the relative return of the XLY has reversed course and trended downward. This trend is in stark contrast to the ascending absolute price trend, resulting in a bearish divergence. 

I would also point out that with many consumer discretionary/cyclical stocks, the relative pain suffered YTD has been income or wealth-indifferent. As shown below, several higher-end, luxury names have taken it on the chin just as badly as companies associated with middle- to lower-income consumers.

High-end, luxury stocks vs. S&P 500

Middle- to lower-income stocks vs. S&P 500

The January Barometer, Another Take

I know it's a bit past-due, but I wanted to offer another take on the so-called January Barometer ("as goes January, so goes the year"). Others have already weighed in on this subject, quite skeptically overall, and yet I'm not so sure that this skepticism is warranted.

From data in The Stock Trader's Almanac, I put together the following:

Since 1950, there have been 40 occasions when the S&P 500 has been up in January and 24 times when the S&P 500 has finished down in January. For the 40 years when January has been up, the S&P 500 finished the year higher 36 times and was down for the year in just three occasions (with one year finishing near exactly flat, excluded). For the 24 years when January has been down, the S&P 500 has finished those years higher in just 11 occasions, with 13 of the 24 years resulting in down years. The key column above is on the far right, "% UP," listing the percentage of up years. Overall, for the entire 1950-2013 period, the S&P 500 has been up in 47 years and down in 16 (again, excluding the one flat year) for a 73% up percentage. Compare this 73% base line figure to 90% up years for the S&P 500 when January has been up and just 46% up years for the S&P 500 when January has been down. Interesting.

The following is from Ned Davis Research:
  

In the period 1928-2012, there have been 54 up Januarys and 33 down. What has happened after these Januarys, for February-December, thus excluding any effect January may be having on results for the entire year? For up Januarys, the ensuing February-December period has returned 8.3% on average or a median return of 10.9% for a 78% up hit rate. Whereas for down Januarys, the February-December period returned just 2.8% on average and an anemic 2.3% median return for a 58% up hit rate or percentage.

Based on the data above, I wouldn't be so quick to dismiss the January Barometer. It appears there might be something to it.

Encouraging Signs

With regards to a market bottom, last Monday I wrote that for starters I'd like to see 1) the S&P 500 put together three consecutive up days off this low or one significant up day with a bar/candle range spanning 15-20+ points, and 2) the MACD to trigger a buy signal, i.e. for a bullish crossover to occur in the 12- and 26-day EMAs, also shown with a positive histogram. As of today, it appears both of these conditions have been met.

Source: Stockcharts.com

The S&P 500 chart above shows three consecutive up days (including two fairly wide bars) and the MACD histogram turning positive. Granted, I would prefer to see a more meaningful buy signal from the MACD, but it's moving in the right direction. It's also encouraging to see the RSI (upper inset) get back above 50.

The NYSE High-Low Index is rising off an oversold level:

Typically when this index first rises from such a low level, it suggests a bottom is near. However, given the compressed severity of this recent correction, it wouldn't be unusual for the market to pullback on the heels of this recovery rally. As further confirmation that a credible low has been established, look for the MACD of the NYSE High-Low Index to trigger a buy signal (positive histogram) -- which has yet to happen.

We're Still Not There Yet

Last Tuesday, I asked "are we there yet?" with regards to a market bottom. My answer then was no, not yet, and it remains my answer. 

What will it take to change my view? For starters, I want to see two things happen.

First, I'd like to see the S&P 500 put together three consecutive up days off this low or one significant up day with a bar/candle range spanning 15-20+ points. Obviously both conditions occurring would be even better. The orange boxes in the daily chart above identify past instances when either of the two conditions have occurred. With the market able to string together at least three straight days of gains and/or experience a big positive spike for the day, it goes a long way towards indicating that sentiment is shifting from fear and caution to more assured, risk-seeking behavior by investors. And as shown in the chart above, we're not there yet. That said it's encouraging to see the S&P 500 holding above the 100-day moving average (red line), which has served as sturdy support in the recent past.

The second thing I'd like to see occur is for the MACD to trigger a buy signal, i.e. for a bullish crossover to occur in the 12- and 26-day EMAs, also shown with a positive histogram. I always prefer to see a meaningful signal with the histogram getting beyond just barely turning positive, but again as shown in the chart above, such a bullish signal is quite a ways off from happening anytime soon.

Having commented on the near-term outlook for the market, I thought it would be appropriate to briefly review a much longer-term perspective.

The monthly chart above displays the S&P 500 going back to 1997. In short, the longer-term backdrop for the market remains solidly bullish. I would become very concerned about a secular decline if 1) the 6-month moving average (blue line) were to cross down through the 12-month moving average (red line), 2) the stochastic were to breach 50 to the downside (note blue boxes), and 3) the rate of unemployment (orange line) were to begin to trend higher (see previous blog post). All three of these conditions occurred in late 2000 and in late 2007 or at the start of 2008. None of the three conditions are in place currently. The 6-month MA remains 75 points above the 12-month MA, the stochastic is extended at 95 (!) and the unemployment rate continues to trend down at 6.7%.

Of course, these conditions could change in the near future, and understand that I track (much) more than three indicators or conditions. But the larger point remains: it would take months for these conditions to change and until that occurs, the long-term market outlook continues to look bullish.

Are we there yet?

Wow, that didn't take long! Depending on the indicator or metric, the current market correction has already reached oversold levels or is fast approaching it.

As shown in the S&P 500 chart above, the stochastic (STO, lowest inset) was at 80 last Tuesday and a week later is now below the oversold threshold of 20. That's quite a compressed and forceful sell-off. The MACD histogram at -7.5 has also attained an oversold level.

This correction or pullback is not especially surprising given the MACD continued to exhibit a bearish divergence (shown in chart above, but also mentioned numerous times on this blog), sentiment had reached optimistic extremes (see P/C ratio blog post) and I discussed how the frequent near-term abrupt reversals this month (see hourly chart) were concerning, indicating "investor confusion or indecision regarding what lies ahead in the immediate future." I would also mention that seasonally the third week in January has typically been rough for the market.

To be clear, the chart above shows the S&P 500 remains in a well-defined, secular uptrend -- a long-term bullish backdrop. The 50-day moving average has been breached, but this has occurred more than a few times within this ongoing uptrend, and the 100-day moving average has served as capable support, now residing at 1764.

So the question is: are we oversold enough, i.e. are we at a bottom yet? I would argue not yet. Referencing the chart above, both the MACD histogram and stochastic have reached oversold levels, however we want to see them turn up and give crossover Buy signals to better confirm the arrival of a meaningful bottom.

As for other indicators, the 10-day TRIN got close to 1.40, a level which has signified intermediate to longer-term lows in the past:

Although for most of last year, the 10-day TRIN reaching the 1.20-1.30 range was often enough to establish a bottom.

The 10-day NYSE advance-decline volume indicator has not (yet) reached the -200 threshold that typically denotes a meaningful low:

But again, last year the -100 level was often enough to satisfy a bottom.

The 5-day equity put-call ratio has spiked higher but remains very low, inferring still too much optimism exists:

And the 4-week NYSE advance-decline line got below zero, but has not reached the -500 level, much less -250:

In short, it appears selling pressure since early last week has been severe, with the market rapidly approaching an oversold condition, but based on past precedence has not yet reached washed-out levels.

(Source for all charts: Stockcharts.com)

Is the amazing run for consumer discretionary stocks coming to an end?

Last October, I asked the question, "Is sector leadership changing?" At the time, relative sector performance was getting somewhat blurry and there were indications of a potential changing of the guard in sector leadership, with the consumer discretionary sector in particular showing uncharacteristic relative weakness.

As a reminder, since the stock market low in March 2009, by far the best performing major U.S. sector has been consumer discretionary/cyclicals.

As I wrote last August:

With the world seemingly coming to an end financially, in large part due to a deeply in-debt and beyond-extended U.S. consumer, the last area most experts thought would do well over the next several years would be the consumer cyclical/discretionary sector. These stocks were deemed a no-brainer must-avoid. Judging from the chart below, such stocks have not performed all that badly (!), in my mind putting together one of the most stellar periods of outperformance since tech stocks in 1999 to early 2000.

However, since December 18th of last year, the day Bernanke offered more clarity on plans for Fed tapering, effectively launching this most recent market rally, sector performance has been interesting.

The chart above shows absolute returns for the S&P 500 Index and the nine major U.S. sectors. Note that I use the Guggenheim equal-weight sector ETFs, which reflect a truer depiction of performance as they are less prone to being skewed by a few mega-cap constituents. The S&P 500 is up 1.55% with health care, industrials, materials and technology sectors outperforming the Index. What's most interesting is all sectors have achieved positive returns since December 18th -- except the consumer discretionary/cyclicals sector, posting a woeful -1.5% absolute return.

This surprising underperformance is further made evident in the following charts.

In just the last few weeks, the relative price of the XLY has broken down through a well-defined, 17-month ascending trend line. Note in the chart above the bearish divergence occurring in the MACD, clearly deviating from the rising trend in relative price.

A similar picture holds true when viewing the equal-weight consumer discretionary sector ETF (RCD) versus the equal-weight S&P 500 ETF (RSP).

As with the XLY, the relative performance of RCD broke trend this month, quite drastically I might add, and again the MACD exhibits a bearish divergence.

Let it be said that the consumer discretionary/cyclicals sector has been counted out before only to right itself and continue on its impressive, and in many ways, confounding run. And that may once again be the case here, with the sector taking a breather of sorts after a prolonged period of uninterrupted outperformance. But the sector's recent lag in both absolute and relative returns is very conspicuous and even striking when you consider it has greatly deviated from all other sectors, and that even the seemingly perennial-underperforming utilities sector has been able to eke out a +0.35% gain. In short, outlier price action is always worth keeping a close eye on.

As for sectors appearing bullish at this point, the industrials sector is one.

The above chart shows the equal-weight industrials sector ETF (RGI) vs. the equal-weight S&P 500. Late last year, the sector successfully broke out of a massive triangle formation and has since been on a relative-return tear.

Another sector exhibiting a bullish relative chart is health care.

The equal-weight health care sector ETF (RYH) has been steadily outperforming the equal-weight S&P 500 for the past two years, but this month relative price kicked into another gear and broke out of a rising wedge formation. A pullback often occurs after such a breakout, as momentum pauses and looks to reenergize.

It's worth mentioning that the recent outperformance of the health care sector is not due to one or two high-flying industry groups. Although biotech stocks have certainly been stellar performers, market-beating returns have occurred across several industry groups in the sector. The chart below shows performance in the period for the S&P 500, biotech, pharma, medical devices and HC services, respectively.

Put/call ratio at very low level

The following chart is concerning. It shows the 3-month moving average of the equity put/call ratio (red) vs. the S&P 500 (black):

Source: Stockcharts.com

This put/call ratio has not been this low since early 2011, just before the S&P 500 peaked. In general, when this P/C ratio reaches levels below 0.60, it indicates a market stretched to the upside with investor sentiment excessively optimistic and frothy. Typically the market consolidates or corrects at these junctures. The timing isn't perfect -- it often is not when it comes to sentiment indicators -- and I prefer to wait for this P/C ratio to meaningfully turn up to get a more accurate bearish signal.

FIVE isn't so alive anymore

I wrote about FIVE last November and said if and when I ever sell the stock, I would report it here. I am doing so today.

The chart has broken trend.

Source: Stockcharts.com

The 200-day moving average effectively represents an ascending trend line and it was recently breached to the downside on high volume. There appears to be support within the $36-$38 range, but since early December the stock has suffered dual high-volume declines, the more recent breaking trend, and my preference is to take the loss and move on.

I still believe in the longer-term story for FIVE and as often happens with gap-down stocks, price could very well revert up to close the gap, getting above $42. But prudence, discipline and risk control will dictate my actions, as always. 

January as a barometer

When it comes to calendar year cycles and seasonal tendencies, January is considered to be a tell-tale month. As goes January, so goes the rest of the year is the market adage.

We can't draw any conclusions yet given the month is only half over, however the first five days of January are frequently cited as having predictive ability in calling the market's direction for the rest of the year. The venerable Stock Trader's Almanac documents the following data:

Since 1950, S&P 500 performance for the first five trading days of January has been up on 40 occasions and down on 23. Of the 40 times when the five-day performance was up, the S&P 500 finished the year higher in 35 of those 40 years for an impressive 88% hit rate. For the 23 times when the first five days suffered a negative return, the S&P 500 ended higher only 12 times for a more meager 52% hit rate. Note that for all years since 1950, the S&P 500 had 47 up years and 16 down years, meaning 75% of the 63 years finished up. 

For the record, this year the first five trading days for the S&P 500 returned -0.6%. Also, many people debate whether this info is statistically significant, questioning the sample size and possible flawed assumptions concerning causality. I will let the reader draw his/her own conclusions, but in isolation I find the data to be at least interesting and worth mentioning.

As for an update on the market, let's review the daily chart.

Source: Stockcharts.com

The S&P 500 Index rallied in late December to reach the upper-boundary of what looks to be a developing ascending, broadening wedge formation. The Index has since pulled back some but continues to look a bit extended as it remains well above the 50-day moving average. Note the bearish divergence in the MACD (orange line) -- something I pointed out in November -- has not gone away.

That said the breadth picture appears very healthy.

The NYSE A/D line (lower inset) finally confirmed the S&P 500's move to new highs in late December and has since surged to new highs this year. It's a bullish indication to see the broader NYSE A/D line reach new heights despite the S&P 500 recently stalling at around the 1840 level.

The stock market clearly remains in a well-defined uptrend longer-term, however in the very near-term the following chart is a bit concerning:

The YTD hourly chart of the S&P 500 shows numerous abrupt reversals, with rallies suddenly reversing course and swiftly taking dives (red boxes). All of this action is occurring within a fairly tight range (1820-1840) and it could simply infer a period of investor confusion or indecision regarding what lies ahead in the immediate future.

Ultimately a price breakout of this range, up or down, will obviously help to clarify the likely ensuing direction for the market. But until that occurs, such frequent and abrupt intra-day reversals with wide-range bars/candles are worrisome and something to monitor.

Eurozone: Rising Like A Phoenix, Part 3

Last August, I wrote about how Eurozone stocks were defying the doubters by "tearing it up" at the time. In October, I again discussed the bullish outlook for this region and further pointed out that the strong move in these equities was just another example of "prices reacting well ahead of any news."

Don't look now but Eurozone stocks are heating up again.

Over the last 20 trading days, the S&P 500 is up by a bit more than 1.6%, but as shown in the chart above, Eurozone ETFs have performed significantly better with the Euro Stoxx 50 rising by 4.1% in the period. 

In fact, the Euro Stoxx 50 Index chart continues to look very bullish.

Source: Stockcharts.com

The Index broke out of a bullish cup-with-handle formation in December 2012 and proceeded to make higher highs with slightly lower lows, more or less holding up at support around 2600. Last September, the Index successfully broke through an ascending trend line, now serving as support at the 2950 level.

It's important and very revealing to show a chart of the poster child of all that was going wrong in the Eurozone region not that long ago.

The Global X FTSE Greece ETF (GREK) plunged in the summer of 2012, getting to as low as $9, before making the slow and quite volatile climb to its current level of $24. Note in the chart above that GREK established a double-bottom last year (blue circles), which ultimately became a portion of a bullish cup-with-handle formation. With the start of this year, GREK has broken out of the handle, inferring price should run further from here. But the bottom line is for Greece equities to appear this bullish, something(s) certainly must be changing for the better in the region!  

Perhaps my favorite Eurozone ETF has been Spain.

The chart of the iShares MSCI Spain ETF (EWP) displays two overlapping bullish formations. Drawn in red is a cup-with-handle formation including the recent break out of the handle, and in blue is an inverse head-and-shoulders formation with a clear breach of the neckline last September. Need I remind that although Greece received most of the attention initially when the euro crisis erupted, Spain (and Italy) was the next country to receive ample scrutiny as default risk became a real concern.

It's encouraging to see that EWP has more than doubled off the bottom in 2012, yet it's not especially surprising. As is often the case when a crisis situation occurs and is then alleviated or resolved, what leads markets off their extremely depressed lows are typically the riskiest assets, and in this case Greece and Spain certainly qualify.

I could show more bullish charts for countries in the region but they all generally look good to great. Again, Eurozone equity charts have been (correctly) indicating for some time that the region has taken a meaningful turn for the positive, and recent economic data has indeed been improving -- surprised?

Update on 10-year UST yield and equities

A few months ago, I discussed the relationship between the 10-year UST yield and equities (S&P 500). In short, the two have been highly correlated over the last several years. This tight relationship can be seen in the following chart:

Source: Stockcharts.com

Since the summer of 2012, the yield on the 10-year T-note (red line) has been in an uptrend, doubling from approximately 1.5% to 3%. In that time, the S&P 500 (black line) has likewise been in an uptrend, rising by about 40%. I wrote then:

Why would rising interest rates be good for stocks, and vice versa? Three related reasons come to mind: 1) rising yields = falling bonds, inferring capital is being reallocated from bonds into stocks, 2) rising interest rates infer a stronger economy and less need for Fed assistance via QE, with a healthy economy being bullish for stocks, and 3) capital very often flows into US T-bonds for safety reasons, driving down rates or yields, and because such capital flow indicates risk-off, it's bearish for equities.

With the Fed recently indicating that tapering was certainly in the cards, albeit modestly, the 10-year UST yield has continued to rise and the bullish inference for equities is the economy has been improving well enough for QE to no longer be an absolute necessity. 

Also during October of last year, in a post entitled, "10-Year UST Note Has Dandruff," I presented the following weekly chart of the 10-year T-note:

A bearish head-and-shoulders formation is highlighted (blue circles), including the breakdown in the rising trend line (orange) and breach of the neckline (red line). At the time I wrote, "$127 has become a key level for the 10-year note, something to monitor closely. I do expect the neckline to hold and for the UST to roll over." As shown in the chart above, the 10-year note did rally to the $127 neckline only to roll over and decline to its current $123-$124 level. 

The purple numbers in the chart indicate S&P 500 levels at key turning points for the 10-year UST note. In contrast to yield, when the T-note rises, equities have tended to fall, and vice versa. Since the UST note peaked in 2012 (at the "head"), breaking down through the neckline last year, the S&P 500 has enjoyed a nice run from 1320 to its current peak of about 1840. The $127 neckline area for the T-note will continue to serve as significant overhead resistance, but now so too will the breached multi-year rising trend line residing at about $126. 

Such a bearish longer-term chart for the T-note bodes well for equities. However, in the chart above I would point out the COT data plotted in the lower inset. Commercial hedgers, typically the smarter money, are currently very long the UST note, attaining their highest level of long exposure in years. In the past, when their exposure has reached elevated levels (beyond 200K, green horizontal line), the UST note has more often than not responded by rallying. If that were to happen in the near future, I would expect equities to stall or retreat in kind.