With the bounce in the 10Y Treasuries, XLRE and XLU also bounced. Both issued buy signals. Not sure whether these are timely signals as the Fed will decide on rates next week. I would be a buyer of fixed income and the US$ only after next week's decision, whatever it might be. Indeed, a stronger rate should attract money into the US$ and fixed income simply because the next rate increase will be much further down the road.
Gold and oil are still supported by a weak US$.
Index investors are outbidding each other to buy at higher highs. Only IWM buyers are less eager.
IYR and VNQ are displaying negative EV patterns. This tells us that fixed income equities are still not that attractive, despite the oversold bounce.
Comments:
For now, nothing can remotely break this market.
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Some longer-term considerations
The considerations below are useless for short-term trading, but interesting nevertheless to put things in perspective:
The Shiller PE Ratio is spiking for now, which basically will only have signficance after it comes down. For now, only low interest rates can justify such a high PE.
Indeed, blue chip corporate yields (still at 3%) are still well below the S&P500 earnings yields of 4%. The difference between the Pink and the Green lines is the opportunity returns of buybacks. You will note that AMZN and NFLX are using all of their cash to grow their business, while many blue chips that are not growing anymore use their cash for share buybacks or to buy other companies.
You will also note that the difference between the Pink and the Blue lines is shrinking. Corporate yields are not growing together with the 10Y Government yields, because of the QE unwinding process, which forces funds to rotate from safer government bonds into corporate bonds. Will this difference become negative or will the Pink line jump and then squeeze the corporate buybacks or push the Green line higher by forcing equity prices lower?
