The Money Flow figures point to a bounce continuation for this week, which carries a bullish positive bias as it is options expiration week.
The story of last week was however rather negative for US equities markets: the 10Y rates bounced back to 1.61%, but worst: the rate differential between the 10Y Treasuries and US corporate bonds also jumped back up, reaching 1.17%
As a consequence, the distance between the current equities pricing and the overvaluation price has dramatically shrunk.
Conclusions:
The earnings season is starting now and this week is options expiration week. I would hence believe that we will experience a bounce continuation.
However, the most important for market valuations is the difference between the 10Y Treasuries yield and the 10Y corporate bonds yields. If this difference reaches 1.21%, the equities markets will start to become overvalued.
Monitoring interest rates will be critical. I have the feeling that if rates increase on the secondary market, the Fed will increase its reverse repo operations, but will this be enough to also lower corporate bonds yields?
