Zoeken
  • TheAdaptiveInvestor

Tactical look at US interest rates and risk assets.

Bijgewerkt op: apr 11

Please read the Disclaimer before reading this article.


On Thursday, I tweeted that I saw some interesting bullish developments in several markets.

Quick reminder, I started the year being bullish risk assets (see this article) but 2 weeks ago, I saw some possible warning signs (see here).

As I wrote, I got stopped out of the few positions I initiated this year. (I’ve got both a price and a time stop. If the market doesn’t react the way it should at the point I buy it, it’s a warning sign. If you want to learn more about this, both Mark Minervini and Jesse Livermore wrote about this in their books.)

The possible developments I’m seeing might give me a second chance to initiate my positions.


The Nasdaq saw a correction of around 11%. Big picture, this was just a retest of former resistance, as the following chart illustrates.

It was also interesting to note that the correction was mostly isolated to the Nasdaq. The S&P500 barely corrected and European equity markets also did very well.


On Thursday, we broke above the March 17 high in the Nasdaq. This was the confirmation I was looking for that the low was in.

Corrections are never a straight line down, there are always counter trend rallies of a few days or weeks. It is when the price can break above the resistance of the most recent rally, that probabilities rise significantly that the low is in.

The following chart shows this for the most recent correction we saw in the Nasdaq.


We can see the exact same pattern in the March 2020 crash…


And in the Q4 2018 correction...


The following chart shows the strong correlation between the Nasdaq and the Semiconductor Index (SOX).


It is interesting to note that the SOX already made new all-time highs last week. Is the Nasdaq to follow?


Last week, SOX increased 9,5%. This price thrust could be very significant according to Macro Charts (@MacroCharts). He shared the following chart on twitter and wrote: “Price Thrusts usually trigger the start of massive rallies – especially in bull markets.”

Source: Macro Charts, @MacroCharts


What could drive this new leg higher in risk assets? As I’ve written before, the US Dollar plays a big part in this. Last week, it failed for the third time to get overbought. Although there are medium-term reasons to be bullish the USD, price action still hasn’t confirmed it.

Therefore, I’m agnostic about the medium-term direction of the US Dollar, and it can thus be the fuel that drives the next leg higher in risk assets. (If it gets overbought, I’ll change my opinion.)


Note in the chart above that the bottom in the US Dollar in September 2020 and January 2021 followed the same technical pattern. Price continued to make lower lows where the RSI didn’t, thereby creating a bullish divergence. Note that it is only when the RSI fails to get oversold, that the dollar bottomed.

(Just noting that there is a divergence doesn’t mean anything.)

This same technical pattern is now visible on the US 10 year yield (but in the opposite direction).

Yields continued to make higher highs, but the RSI started to show a divergence. This past week, yields made a new high but the RSI failed to get overbought…

As I’ve shown in a previous article, the weekly RSI is at one of the most extreme overbought levels in history. This also indicates that we could be seeing a period of consolidation.


Besides the price action, sentiment is also extremely negative bonds.

The following chart from Macro Charts (@MacroCharts) makes this very clear.

Source: Macro Charts, @MacroCharts


Because a higher discount rate has a bigger impact on companies whose earnings are further away in the future, rising yields impacted the Nasdaq more than other sectors.

If yields can stabilize here, this should be good for the Nasdaq.


Another sector that can profit from stabilizing yields is the precious metals sector.

I’ve shown the big picture technical set-up in my previous article and nothing has changed since then.

If it can prove itself, I’ll get back in.


One big caveat: it's not because the sentiment in bonds is extremely bearish and because the RSI of the 10 year yield is extremely overbought (on a weekly basis) and showing a negative divergence (on a daily basis), that we'll certainly see a consolidation.

In my opinion, fundamentals clearly support higher yields.

I'm long FCX at the moment which isn't impacted by rising yields as is the case with gold mining shares.

If I decide to take a position in the gold mining shares, I'll do it at a logical point where it is easy to see when I'm wrong so that I can risk manage my position easily. In my opinion, this is not yet a time to have big confidence and just buy and hold the gold mining shares.


Thank you very much for reading my article.

You can follow me on twitter: @adaptiveinvest

209 keer bekeken

Recente blogposts

Alles weergeven