After a big bounce in beaten-down growth stocks on Wednesday, all eyes are on the Nasdaq-100 to see if it can break out from the range it’s been trading in for much of the past month. While technically the index has been charting lower highs since its peak in mid-February, another 200-point gain like yesterday would break that trend and put the index in a compelling position to make a push back to a record.
A nice pop in Micron shares after earnings should be a good head start going into the last trading day of the week, which includes Jobless Claims and PMI manufacturing. With markets closed on Friday, another ramp into the weekend would be a huge win for bulls. It would be an even bigger deal if it happened on a down day for bonds. The Nasdaq has been trying to free itself from the shackles of the Treasury market lately, but hasn’t been able to take flight even with the 10-year yield unchanged from 10 days ago.
The biggest departure between the two so far was Friday’s big ramp that happened as yields pushed past 1.65%, but we now know there were some strange idiosyncratic things happening in the market at that time surrounding the Archegos event. The Nasdaq’s big move on Wednesday happened as bonds were flat to lower, but it faded near the close as the 10-year moved up toward 1.75%. The 5-day correlation between the two is the lowest since the Nasdaq’s Feb. high, but the 30-day correlation is still the tightest it’s been since 1999. With inflation the top concern among investors right now, a clean break between tech and bonds would be a hugely bullish event. The problem is that hot inflation remains largely speculative, and bonds still can’t stage a meaningful rally. A softer-than-expected PCE reading, European vaccination blunder, and a flare-up in COVID cases here have done little to stop the 10-year yield from trending higher on the chart.
Earlier this month I pointed out potential for resistance in the yield at 1.7%, and we’ve gotten a little bit of that, but another gap higher and 1.9% is very much in play (I am using the 4Q19 ascending triangle as my guide for these levels). Bank of America analysts earlier this year wrote that 1.75% is the beginning of the pain point for stocks. I don’t know if that’s true, but with economists standing by projections for the 10-year yield to end 2021 lower than it is right now, there’s not a lot of reason to believe the stocks that had a problem with it ripping through 1.2% would suddenly love a jump to 1.9%.
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