Certainly the past 6 trading days (NFP Friday and every day thereafter) have been strong for bond markets and weak for stocks. The connection between the two has been fairly strong as well, in that stocks are rising and falling with bond yields throughout the day. Herein lies a clue about the week ahead.
The clue has to do with how each side of the market has been behaving relative to recent precedent, and it suggests that we might take the next four days to get back to economic basics as opposed to trading based on momentum and positions.
Simply put, both stocks and bonds are at or near levels where recent history suggests they'll pause for reflection or simply turn around. In bond markets, this is most easily seen in the technical resistance at 2.60 in 10yr yields. It's a retracement level we've discussed time and again in late 2013 and so far in 2014. Every significant break of 2.68 has seen a move down to 2.60, but nothing much more than that.
I'd be the first to remind you that the mere presence of technical resistance on a chart doesn't at all guarantee an outcome. It really doesn't make the odds much better than 50/50. Rather, the point here is that the recent rally has very much remained in the context of the ongoing range. In fact, if we look more closely at the sell-off in stocks, there's nothing too special about it either. Set against 4 moving averages where the purple line on the bottom is the 6-month average that has roughly marked the lower bound for periodic corrections, the current example is not only fairly similar to previous examples, but also getting close to having run its course.
So the clue is that we have both stocks and bonds making what look like bigger moves only to find out that they're fairly normal in when viewed in context. Both of the moves are at or near the end of their runs, historically speaking. AND we're embarking on a holiday-shortened week that focuses on Economic data with the first report of the day being a relatively significant one (Retail Sales at 8:30am). If that data is as-expected or stronger, it may do a lot to set the tone for the rest of the week, simply because it could trigger the default response for the mutual movements in stocks/bonds and put an end to the recent runs.
Whether this results in sideways movement or weakness in bond markets remains to be seen. Previous examples vary in that regard, with not all "end of the bull run" moments being too terrible in terms of the bounce back.
The remaining data may help flesh that out. Tuesday can't do too much heavy lifting, with only the Consumer Price index and the Empire State Manufacturing Survey at 8:30am. NAHB's Housing Market Index reports at 10am, rounding out a fairly busy day of fairly inconsequential data.
Wednesday is slightly more meaningful with Housing Starts at 8:30am and Industrial Production at 9:15am. The Fed's Beige Book is released at 2pm, but typically isn't a market-mover.
Thursday is the best chance for movement as it contains the most meaningful data: Jobless Claims at 8:30am and the Philly Fed Survey at 10am, the latter being the bigger potential market-mover. Markets are fully closed on Friday for Good Friday, though banks remain open.
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