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10-Year yield nears 3 percent and investors get jumpy

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Stocks opened in slightly positive territory on Friday but those minor gains were quickly erased and the bears took charge for most of the day. The indices ended the day off their lows after a late push higher into the close, but the losses were still fairly large. The Nasdaq trailed with a loss of 1.27% while the Dow, down 202-points, each lost about 0.8%. Bonds took another hit, and that seems to be a concern.

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The 10-Year Treasury Yield moved higher again, this time above 2.95%. Does 3% have some magic qualities that will damage stocks? Perhaps, but mostly because it's a round number and emotions are involved. The difference between 2.8% and 3.0% is almost negligible when you're talking about an annual return, but that is the number investors are worried about.

What it does signify is possible inflationary concerns and that would get the Fed's attention and they are already on the hawkish side when it comes to rates, so there is something to be worried about there. As far as the round number mattering, I don't know about that, but it's what is making the headlines right now.

The S&P 500 / C-fund fell back below the 50-day EMA after 3 closes above it but it did find some support at a must hold level near 2660. The analysis here is basically - hold here or we may be revisiting the 200-day EMA.

The small caps / S-fund broke below its narrow rising trading channel, and as we mentioned on Friday, it would have had to do that to fill the small open gap from earlier in the week. So whether this was just a gap getting filled or a breakdown won't really be answered until early this week.

The Dow Transportation Index remains in its three month trading channel after failing to breakout again and now reversing in the direction of the bottom of the range. The 50-day EMA is there about half-way between the range to try to give it some support, but as you can see, it hasn't been much of a factor holding in either direction for more than a couple of days at a time.

The EAFE Index / I-fund also hit the top of its range and started moving lower again. The strength in the dollar on Friday did not help, but as you'll see below, the dollar is hitting some resistance as well.

The dollar rallied and hit the top of its wedge formation on Friday, opening a gap in the process. There is a larger gap up near 23.95 that could be a draw, but it hasn't been able to get out of that 23.10 to 23.80 range for almost the entire year.

Like the I-fund, the price of oil likes a weaker dollar so the 2-day rally in the dollar has stalled the rally in oil and it is now testing the top of a large rising trading channel. The energy sector has been trying to help keep the S&P 500 afloat over the last couple of weeks, so if this pulls back to the bottom of the channel, the S&P will have to look elsewhere for help.

The AGG (Bonds / F-fund) fell sharply and those rising yields are putting pressure on stocks. You can see the key support lines and one broke last Thursday. If yields can hold at or below 3.0%, that February low would likely hold here on the AGG. But that's a big "if."

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to:

Thanks for reading. We'll see you back here tomorrow.

Tom Crowley

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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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  1. userque's Avatar
    You have to fix the title/url. There's a percentage sign in it that's not properly encoded.

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