Good Wednesday AM,

What a week yesterday was. Bond yields just blew up unexpectedly there was no real buying in stocks to blame. Mortgage bonds sold off 60bps. It was a rough day and the move was caused by an expectation that the economy is rebounding quickly. Those expectations came true today when a slew of data beat expectations. Retail Sales and PPI were big wins. Retail sales were up almost 6%. The selling will end and markets are calmer today but yesterday’s damage was done. Moves like yesterday though defy typical trading patterns as the selling just caused more selling like a stone rolling down a hill gathering speed. The expectation though once that stone reaches the bottom of the hill it has traveled too far, too fast. That is at least the hope today that we will see some retracement/rebound shortly. Meanwhile, let’s not assume this is over.

I am going to geek out a bit here. Moving away from outright levels and instead focusing purely on “momentum,” there is a supportive case to be made for a rebound.  Stochastics are one of the more mainstream methods for charting momentum.  They consist of two lines.  One measures where yields close relative to recent highs/lows over a certain time frame and the other is a simple moving average.  When the lines cross in certain regions of the chart, it’s considered a buy/sell signal.  In the chart below, when the lines are above the upper horizontal line, they are considered to be in “oversold” territory.  When the green line crosses below the teal line in that territory, it’s a buy signal.  Such signals have reliably coincided with friendly yield bounces, and it looks like we’ll get a similar cross today.

Please remain safe and healthy, make today great!