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Long Bonds: Island Bottom and the Signal of Chaos

On March 7th, we asked “Will the Market Internals Turn More Bearish”?

While we focused mainly on Jerome Powell’s testimony, when he said “if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” in the same Daily, we featured the long bonds (TLT) and that the chart had a constructive exhaustion gap bottom in play. We went on to write that “the Real Motion indicator shows a positive divergence, as momentum is just under the 50-DMA while price is considerably below its 50-DMA.”

The question asked was, why would the long bonds bottom? Our answer:

“It could mean that while the short-term yields invert, the market is expecting a recession, hence a flight to safety in long bonds. We imagine that, should 20+ year bonds continue to go north, that too could be inflationary.”

We started the year introducing our report, “How to Grow Your Wealth in 2023.” In this Year of the Yin Water Rabbit, we began with:

You Can’t Run with the Hare and Hunt with the Hounds.

Little did we know then, how well this describes the Federal Reserve, the reversal in TLTs and the catalyst of 2023’s biggest dilemma of all — Recession or Stagflation: What Will It Be?

More from the Report: “For 2023 one word and two expressions keep coming up: Chaos, Trying to fit a square peg into a round hole, and Looking for Inflation in All the Wrong Places.”

Of course, the biggest headline this week in finance is the collapse of SVB and Silvergate. That sounds a lot like Chaos. The full fallout is unknown, but if the market has anything to say about it, both long bonds and gold rallied.

Folks calling for deflation are using Money Supply decline as an example. They are citing “higher for longer” concerning rates. They are talking about the strong labor market.

BUT… that is more of Trying to fit a square peg into a round hole.

Five Reasons Folks are Looking for Inflation in All the Wrong Places:

Climate-Natural DisastersFood shortages could prevail-hoarding-sugar prices flyingSocial unrest from high inflation, higher yields, losing credibility (banks, government) CLASSIC example this week.Geopolitics-rising tides of issues-we hope not but be prepared.Government spending/Federal Reserve-what are they going to do now? Print? Save the banks? Keep raising rates creating more liquidity crises?

The chart of the TLTs show price clearing the 50-DMA. That is an unconfirmed phase change to Recuperation. A second consecutive close above will confirm the phase change. Clearly the Leadership indicator tells a story, as bonds well outperform the SPY. And the Real Motion of momentum indicator, already with a positive diversion as mentioned on March 7th, now could stay in gear.

Could the picture reverse next week? Yes. However, to quote the Report: “The lesson we should take from this is not that inflation is destined to move to new highs in the months ahead (after all, nearly 30% of the time, it is, in fact, cresting!), but that we dismiss that possibility at our peril.”

Our Global Macro Quant Model bought gold. Even the algos know what’s up!

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

IT’S NOT TOO LATE! Click here if you’d like a complimentary copy of Mish’s 2023 Market Outlook E-Book in your inbox.

“I grew my money tree and so can you!” – Mish Schneider

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

Mish in the Media

Mish joined the March 10 closing bell coverage on Yahoo! Finance, which you can see at this link!

Mish goes through the macro through key sectors and commodities in this appearance on CMC Markets.

Mish joins Mary Ellen McGonagle (of MEM Investment Research) and Erin Swenlin (of DecisionPoint.com) on the March 2023 edition of StockCharts TV’s The Pitch.

Mish talks women in finance for International Women’s Day on Business First AM.

Mish focuses on defense stocks in this appearance on CNBC Asia.

Mish points out a Biotech stock and a Transportation stock to watch if the market settles on Business First AM.

Mish joins Maggie Lake on Real Vision to talk commodities and setups!

Read about Mish’s article about the implications of elevated sugar prices in this article from Kitco!

While the indices remain range bound, Mish shows you several emerging trends on the Wednesday, March 1 edition of StockCharts TV’s Your Daily Five!

Mish joins Business First AM for Stock Picking Time in this video!

See Mish sit down with Amber Kanwar of BNN Bloomberg to discuss the current market conditions and some picks.

Click here to watch Mish and StockCharts.com’s David Keller join Jared Blikre as they discuss trading, advice to new investors, crypto, and AI on Yahoo Finance.

In her latest video for CMC Markets, MarketGauge’s Mish Schneider shares insights on the gold, the S&P 500 and natural gas and what traders can expect as the markets remain mixed.

Coming Up:

March 13th: Mish on TD Ameritrade with Nicole Petallides

March 14th: F.A.C.E. Forex Analytix with Dale Pinkert

March 16th: The Final Bar with Dave Keller, StockCharts TV

And down on the road

March 20th: Madam Trader Podcast with Ashley Kyle Miller

March 22nd: The RoShowPod with Rosanna Prestia

March 24th: Opening Bell with BNN Bloomberg

March 30th: Your Daily Five, StockCharts TV

March 31st: Festival of Learning Real Vision “Portfolio Doctor”

April 24-26: Mish at The Money Show in Las Vegas

ETF Summary

S&P 500 (SPY): Our trading range theory was 4200-3200–maybe.Russell 2000 (IWM): 170 next major support, 182 resistance.Dow (DIA): 310 support, 324 resistance.Nasdaq (QQQ): Unconfirmed bearish phase–confirms if second close under 290.Regional Banks (KRE): Maybe overdone for now, but not necessarily done. 40 target, 55 resistance.Semiconductors (SMH): Still in a bullish phase, over 240–maybe a pop for everything.Transportation (IYT): 223 the 200-DMA major support–2nd in strength to SMH.Biotechnology (IBB): Teetering on the 80-month MA at 121.Retail (XRT): Under 64 remains weak–next big support at 56.00.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

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