I have to admit I’ve been thinking a lot about bonds lately.
Like way more than usual.
It’s because I think this is a critical time and place for treasuries.
The 30-year US yield $TYX is backing off after testing its cycle highs. Meanwhile, the popular iShares long-term treasury fund $TLT is rebounding off a big shelf of support.
If these key levels break— so TLT to the downside and TYX to the upside— we’re talking about major pattern resolutions.
Major pattern resolutions tend to be followed by significant reaction legs.
What I’m saying is bonds are at risk of tanking lower if this scenario were to play out.
And have you noticed how stocks have felt about bond market volatility lately?
I’ve overlaid ARKK with the inverted MOVE index to answer that question for you:
Think of MOVE like the VIX for bonds. This relationship shows that when the bond market is calm and orderly, it’s good for speculative growth. On the other hand, when bonds are volatile, these stocks come under pressure.
So the bottom line is bonds can’t break down here if these risky stocks are going to keep trending well. I have heavy exposure to this theme, which is why I’m so interested.
We bought a handful of speculative growth calls last week and sold quick doubles in all of them already. If we’re going to get the kind of follow-through that can turn these positions into reallybig winners, we need the bond market to be on board.
And for now, it is.
After holding multi-year support, TLT is scooping and scoring back above a shelf of year-to-date lows. Here’s a look.
And here it is overlaid with ARKK:
These two lines have been diverging for too long already.
I don’t think long-duration equities can withstand another ramp higher in the long end of the curve. It seems they’ve actually been pricing in the opposite direction for rates. And I think we gotta see it ASAP for these new leaders to keep leading.
So, whether or not we keep leaning on this speculative tech theme in the future is going to have a lot to do with the action in the bond market.
And I don’t think the ARKK-y stuff is alone when it comes to their interest rate sensitivity these days. There are other groups that would surely enjoy lower rates as well.
I think biotechs, builders, and banks fall into the same category, to varying degrees.
It’s always good to monitor your exposure to different intermarket trends.
If you own a lot of these kinds of stocks, like I do, I think it’s important to pay attention to bonds. But if not, don’t worry. I’ll keep you updated.
We’ve had tremendous success buying speculative growth in our Breakout Multiplier system this year. We just closed our special Memorial Day sale, but if you call Mary and tell her you want in, I have a feeling you can still get it.
