Have Rates Finally Peaked?
Stocks rose last week, but a more important signal may have come from the yield on the 10-year Treasury note.
Today’s idea uses multiple time frames to consider whether borrowing costs have finally peaked.
The first pattern on the daily chart is the gap lower on November 2. It was a key day when labor productivity improved much more than expected and labor costs fell more than expected. That news drove down interest rates and helped propel the S&P 500 on its current rally.
TNX’s peak on November 2 was roughly 4.7 percent. The level was retested on November 13 (establishing a weekly high) before yields continued down below 4 percent.
Yields paused at the same zone in late April and were unable to climb further. The result could be a lower high on the weekly chart. If TNX remains below this level it could be the first major sign that interest rates are done increasing.
The June 2008 high of 4.324 percent has also been important. Last month’s breakout above that level worried investors and handed the S&P 500 its first negative month since October. Will traders now look for a retest?
In conclusion, inflation news has been mixed recently. However, Jerome Powell seems determined to cut interest rates and resist further hikes. Commodities also dropped last week and employment data was soft. That might be enough to support the doves -- at least for the time being.
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Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options or futures); therefore, you should not invest or risk money that you cannot afford to lose. Online trading is not suitable for all investors. View the document titled Characteristics and Risks of Standardized Options at https://www.TradeStation.com/DisclosureOptions. Before trading any asset class, customers must read the relevant risk disclosure statements on https://www.TradeStation.com/Important-Information/. System access and trade placement and execution may be delayed or fail due to market volatility and volume, quote delays, system and software errors, Internet traffic, outages and other factors.
Securities and futures trading is offered to self-directed customers by TradeStation Securities, Inc., a broker-dealer registered with the Securities and Exchange Commission and a futures commission merchant licensed with the Commodity Futures Trading Commission). TradeStation Securities is a member of the Financial Industry Regulatory Authority, the National Futures Association, and a number of exchanges.
TradeStation Securities, Inc. and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., both operating, and providing products and services, under the TradeStation brand and trademark. When applying for, or purchasing, accounts, subscriptions, products and services, it is important that you know which company you will be dealing with. Visit [url =tradestation.com/DisclosureTSCompanies] TradeStation.com/DisclosureTSCompanies for further important information explaining what this means.
Today’s idea uses multiple time frames to consider whether borrowing costs have finally peaked.
The first pattern on the daily chart is the gap lower on November 2. It was a key day when labor productivity improved much more than expected and labor costs fell more than expected. That news drove down interest rates and helped propel the S&P 500 on its current rally.
TNX’s peak on November 2 was roughly 4.7 percent. The level was retested on November 13 (establishing a weekly high) before yields continued down below 4 percent.
Yields paused at the same zone in late April and were unable to climb further. The result could be a lower high on the weekly chart. If TNX remains below this level it could be the first major sign that interest rates are done increasing.
The June 2008 high of 4.324 percent has also been important. Last month’s breakout above that level worried investors and handed the S&P 500 its first negative month since October. Will traders now look for a retest?
In conclusion, inflation news has been mixed recently. However, Jerome Powell seems determined to cut interest rates and resist further hikes. Commodities also dropped last week and employment data was soft. That might be enough to support the doves -- at least for the time being.
TradeStation has, for decades, advanced the trading industry, providing access to stocks, options and futures. See our Overview for more.
Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options or futures); therefore, you should not invest or risk money that you cannot afford to lose. Online trading is not suitable for all investors. View the document titled Characteristics and Risks of Standardized Options at https://www.TradeStation.com/DisclosureOptions. Before trading any asset class, customers must read the relevant risk disclosure statements on https://www.TradeStation.com/Important-Information/. System access and trade placement and execution may be delayed or fail due to market volatility and volume, quote delays, system and software errors, Internet traffic, outages and other factors.
Securities and futures trading is offered to self-directed customers by TradeStation Securities, Inc., a broker-dealer registered with the Securities and Exchange Commission and a futures commission merchant licensed with the Commodity Futures Trading Commission). TradeStation Securities is a member of the Financial Industry Regulatory Authority, the National Futures Association, and a number of exchanges.
TradeStation Securities, Inc. and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., both operating, and providing products and services, under the TradeStation brand and trademark. When applying for, or purchasing, accounts, subscriptions, products and services, it is important that you know which company you will be dealing with. Visit [url =tradestation.com/DisclosureTSCompanies] TradeStation.com/DisclosureTSCompanies for further important information explaining what this means.
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