Daily chart patterns show possible rotation from stocks to bonds

Daily bars do not show us much in the way of an established trend. However, they can offer clues of a pending change. Such clues may be presenting themselves on the markets right now, including some potential of an asset class rotation. Caveat here: the data presented is looking at daily bars over a one month period. Take it for what it is—a near termed observation only.

Let’s take a look at the daily pattern for the US DJIA index. You can see on the chart below that it began an early pattern of lower highs and lower lows. You can also see a daily chart pattern for bonds on both sides of the border – which was bullish from mid-April while the Dow was beginning to roll over. Currently, that bond market strength is in question, as you will  see in my notes below and on the high/low indications on the charts.

Given that we’re only talking of a few weeks of daily data – these observations are not established enough that one would want to assume a trend to trade off of. But they are worth noting. These charts show us the potential for an interim rotation into bonds and a continued correction for stocks, should this pattern continue. My notes below pertain ONLY to the daily bars and potential trends arising from those daily movements.

 

 

S&P TSX 300

tsx daily

No new high yet, no trend (flat)

 

Dow Industrial recent peak/trough readings

dow daily

Lower highs and lows. Trend = down

 

XBB-T iShares Canadian Bond Aggregate Index recent peak/trough readings

xbb

Was trending up. Currently trending down, lower high/low.

 

AGG iShares US Bond Aggregate Index recent peak/trough readings

agg

Was trending up. Currently trending down, low taken out.

4 Comments

  • ACCORDING TO A RECENT STUDY, “SMART MONEY” HAVE BEEN NET SELLERS FOR 16 CONSECUTIVE WEEKS, THE LONGEST STRETCH SINCE BANK OF AMERICA BEGIN TRACKING THE DATA IN 2008.
    INVESTORS ARE ALSO HEAVILY HEDGED BY WAY OF PUT OPTIONS, WITH PUT/CALL RATIO HITTING THE HIGHEST RATIO SINCE JANUARY. STILL, MARKET ON BOTH SIDES (US AND CANADA) IS GOING UP :ANY SETUP FOR A BULL TRAP?

    Reply
    • I’d suggest that the daily short termed charts show us that markets are NOT in fact going up – TSX is flat, US markets are down over the past month per this blog.

      Further–Intermediate chart patterns (weekly chart 1+ year of data) are NOT trending up, given that the TSX has not put in a new high since Sept 2014, and the S&P 500 / DJIA have not put in a new high since May 2015.

      Bull market = higher highs and higher lows. No new highs = consolidation. Currently the monthly chart suggests a macro bull market is still in place. However–Short and intermediate termed patterns suggest consolidation.

      Reply
  • Keith, do you feel now that by late summer or early fall the S and P could go under 1720.

    Reply
    • I think the targets of 1880 (last summer’s approx. low) and 1820 (this January’s approx. low) are the first things to watch. I’ll consider what might be next support levels only upon both of these support points being violated.

      Reply

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