Since the fall of 2018, Wall Street participants have hotly debated the direction of domestic and global interest rates. When the Fed leaned “hawkish” last fall, interest rates/interest rate expectations rose and stocks declined. The Fed changed its tune in late December 2018, and interest rates, which had already been declining, fell further. Interest rates plunged even more during March, aided in part by a number of different factors, including weak global economic reports. The final dive occurred during the middle of last week when the CBOE 10-Year U.S. Treasury Yield Index (TNX/24.97, equivalent to 2.49% for the 10-Year U.S. Treasury Yield) hit 23.56, or the equivalent of 2.35%.

Consistent with the deeply oversold condition evidenced by the decline of the CBOE 10-Year U.S. Treasury Yield Index (TNX), a chart of the iShares Core U.S. Aggregate Bond ETF (AGG/$108.31) exhibited an almost parabolic (straight up and overbought) configuration. Parabolic moves usually result in a sharp and fast move in the opposite direction. The oversold condition for the TNX occurred when the index hit the lower Bollinger Band drawn 2.5 standard deviations below it 50-DMA. Simultaneously, the 15-day Rate of Change for TNX reached an extreme level; in the past, such a level was followed by a move higher by TNX. As a result, I believe the odds favor a mean reversion move—TNX moves higher (interest rates rise) and AGG lower.

CBOE 10-Year U.S. Treasury Yield Index for April 1, 2019.
iShares Core U.S. Aggregate Bond ETF for April 1, 2019

In short: When the observations above are combined with the Monday, 4/1/19 news of strong economic data out of China and the U.S., it is apparent that confidence in the “economic growth narrative” is gaining traction. Consequently, a pro-cyclical rally is occurring.

 Last-minute Chart: As our models dictate, we will adjust accordingly.    

DJIA with 50-DMA Support. If the “pro-cyclical rally” continues, the new high by the A-D Line implies the cash index will follow suite and record a new high - closing high for DJIA is 26828.39, intraday high is 26,951.81.

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Day Hagan Market Update Webinar with Donald Hagan, CFA, April 10, 2019 @ 4:15 PM EST

Day Hagan Technical Analysis Webinar with Art Huprich, CMT, April 16, 2019 @ 4:15 PM EST

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 04.01.2019. Chart sources: StockCharts. Thanks to Walt Deemer for providing the title of this report. Mr. Deemer attributed the quote to G. Stanley Berge (a good friend of my former associate Ralph “Big Guy” Bloch – RIP to both of you) in his recent book titled, “When the Time Comes to Buy, You Won’t Want To.” 

PDF Copy of Article: Day Hagan Tech Talk April 2, 2019 (PDF)

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