[ This post comes from Gregory K – a long-term Member in Florida ]

Stock markets and bond markets usually go in opposite directions. During a bond market rally, the stock market drops causing the yield to go lower — so if you hear or see a bond market rally, yields should drop. When the bond market crashes, like in March 2020 the yields rose. It was at this time the Federal Reserve stepped in and slashed rates. Their thinking was that they wanted to backstop the economy and prevent any further economic damage and stimulate growth. In a strong economy, there is great demand for money so interest rates rise in response. The 10 year is the proxy for all borrowing. If you follow the chart that is included you can see yield went from the low of 3.98 to 16.53.  What that means is that for every $1,000.00 the yield rate on the 10 year was .398% March 2020 and now 1.653% as of this print. So if you bought a 10 year Treasury in $1,000 increments the U.S. Government would pay you 1.653% twice a year for 10 years plus your original investment of $1,000 at the end of 10 years. This type of investment has extremely low risk and payment is backed by the U.S. Treasury.

When the economy is weak, companies post weak earnings and investors sell their stocks to put money in conservative investments such as bonds. For that reason normally you will see bond prices rise and stock prices fall. And when prices rise, yields drop. In a nutshell this makes money less expensive for borrowers and serves to help a weak economy recover. During this time individuals take advantage of low rates and buy homes, durable goods and cars. Companies tend to repay debt, refinance debt, buy back stock and invest in their companies infrastructure to expand operations.

As the economy becomes stronger so do companies and they begin to start to post good earnings.  With good earnings the stock market rallies. When the investors see this taking place they are willing to take on more risk and sell their bonds and move back into the market and buy stocks hoping for price appreciation at a better return than they were getting on their bonds. The selling of bonds drives the price of bonds down and moves the yields higher.

In the years after the credit crisis of 2008 the Federal Reserve began a series of quantitative easing a.k.a QE1, QE2, and QE3. It was designed to add money to the nation's money supply. This helped spur the economic recovery and to keep interest rates low.  Basically the Reserve was creating dollars by buying their own Treasury debt in the open market and printing dollars. When the Fed bought a significant amount of bonds the bond market rallied. This is all called monetization of debt. During the QES, corporations borrowed money at a cheap rate and that helped them post strong profits in a relatively weak time in our economy. As stated before, strong profits result in a stock market rally.

Institutional investors were able to buy stocks on margin. They borrowed other people's money, (think broker) to buy stocks at historically low margin rates, which allowed them to make greater profits on the investments using other people's money. Stocks rallied in part due to the institutional demand and during the same time the bond market also rallied driving yields down.

Now, as Alex and Kerry like to say, let's look at the charts.

The weekly 10 year chart shows a yield low of 3.98 in March of 2020, (Chart #1),  at the beginning of the pandemic.  Since that time we have had 5 higher lows. The last higher low was actually $14.15 and then we saw a handle that broke below the 50DMA to $13.43 and consolidated for about 4 weeks and recovered/upthrust top side the 50DMA.The green arrow demonstrates the stock market rally after yield collapsed. We are now approaching some resistance at $17.65 and $19.22.  The 50DMA has acted as support since June/July 2021. We have been in a consolidation pattern since the middle of February 2021 until now. During that time yields ranged from a high of $17.65 to a low of $11.38. On January 5, 2021 we reached a high of $17.05 and the markets sold off heavily. In my own opinion I would be surprised if the Spike Bounce doesn't get extinguished in the next 2 days. 

The NASDAQ ETF is generally an ETF of growth stocks. Growth stocks tend to be more sensitive to fluctuations in the Treasury Yield. Based on the consolidation box the last 3 yield highs have led to a recoil in price on the NASDAQ. Today at the close the NASDAQ was slammed while the Yield closed at $17.05. (See QQQ Chart #2)

I've included two charts one of the 10 year yield, showing Spike Bounce triggers beginning in June 2021, (Chart #3), and the same 10 Year chart showing previous Spike Bounces that ended.  (Chart #4)

I look at price first and then patterns.  Like an old photo album you begin to see familiar faces, I too believe we may be seeing the end of this bull run and maybe the start of a bear market.

Please note this is my first blog.  This is a work in progress and hopefully helpful to everyone. I will try to expand on this at a later date and as data becomes available.