From DWA's Market Report. September 28th, 1999
I wanted to post this since it is an excellent report on the interest
rate front. The DJBB and all of the facets that we look into towards
the future of bonds.
AN UPDATE ON THE BOND MARKET
We mentioned in yesterday's report that we would have an
update on the bond indicators for you today. We gave you a glimpse
into what was happening with our brief comments on Monday, but
today wanted to expound on those and wanted to show you an
updated chart on the futures contract and the TYX. We have started
to see the first signs of hope with respect to a potential bottom in
bonds. Let's take a look at why we say that.
The T-Bonds December futures contract has given two
consecutive buy signals off the bottom after falling to a recent
low of 112 1-2. The most recent buy signal was a double top
breakout at 114 1-2, and this followed the first upside breakout at
114 1-4. Very good support has formed in the 112 1-2 to 113 1-4
area. There is room for bonds to trade up off the bottom before
the bearish resistance line is met at 117 3-4.
T-Bonds December futures contract has positive momentum on
both a daily and weekly basis; the longer term monthly
momentum has been negative for nine months and is now getting
less and less negative. A change is not far off, and such a change
to positive monthly momentum would suggest higher prices for
bonds.
The bullish price objective for T-Bonds December, based on the
move off the bottom, is 119 1-4.
The 30 Year Yield Index (TYX) has broken down. On the
shorter term (.25 per box) chart the TYX has given a notable sell
signal. It did so on Friday when it broke a triple bottom at 60.00
(or 6%). Along with the triple bottom sell signal, the TYX also
violated its bullish support line that dated back to December of
last year when rates were around 4.9%. This breakdown comes
after forming initial resistance at 61.25, below the August high of
62.50. There is some support at 58.75 then not till 57.50.
The daily and weekly momentum's are negative for the TYX;
and the longer term monthly momentum has been positive for
nine months, but it getting less and less positive. It would turn
negative at 56.78.
The initial bearish price objective for the TYX, after topping out
at 62.50, was 55.00. A newer, incomplete count yields 57.75.
The longer term TYX chart (.50 per box) is still in an uptrend. It
would give a significant sell signal at 58.50 and would test its
uptrend line at 56.50.
The NYSE Bond High-Low Index has reversed up from a low,
low level of 4% to give a buy signal. This is another short term
positive.
The DJBB still remains on a sell signal and it would take a move
to 100.20 to give a low pole warning, and a move to 100.80 to
break a previous top. This is our main longer term bond
indicator. As long as it stays on a sell signal, we remain (overall)
bearish on bonds.
As laid out above, there are some short term positives that have
occurred in the bond market. So we may well be making a bottom in
bonds, after almost a year long slide. So for those more intrepid in
nature, you may choose to scale into some bond positions. Those
that do so could consider playing either the T-Bonds December
futures long; or by shorting the TYX. We, though, would ideally like
to wait for at least a low pole warning in the DJBB before doing so.
We will keep you posted to any further changes.
T-Bond December - USZ9 Trend Chart
*
120.75 O *
120.50 O *
120.25 O *
120.00--O-----------------------------------*----------------------------------
119.75 O *
119.50 O *
119.25 O *
119.00 5 *
118.75--O---------------------------------------------*--------------------Top-
118.50 O X *
118.25 O X O *
118.00 O X O X *
117.75 O X O X O * Bearish resistance
117.50--O-X-O-X-O------------------------------------------------line is well -
117.25 O O X O above at 117 3-4
117.00 O X O X X
116.75 O X O X O X O
116.50 O X 6 X O X O
116.25------O-X-O-------------X-O-X-O---------X--------------------------------
116.00 O O X O O X O
115.75 O X O X O
115.50 O X X X O X X O X
115.25 O X O X O X X O X O X O X
115.00----------O-X-O-X-O-X-O-X-----O-X-O-X---X-O-------------X----------------
114.75 O X O X 7 X O X O O X O X O X Med
114.50 O X O X O O X O X O X O X X -Has given a
114.25 O X O X O O X O X O X O X X second buy
114.00 O X O X 8 O X O X O X X O X signal off the
113.75----------O-X-O-X---------------------O-X-O-X-O-X-O-X-O-X---bottom ------
113.50 O X O X O X 9 X O X O X O X
113.25 O O X O X O X O O X O Has formed
113.00 O O X O O X good support in
112.75 O O X 112 1-2 to 113 1-4
112.50--------------------------------------------------O----- range. ---------
30-YR Yield Index - TYX Trend Chart (.25 per box)
62.50 ------------------------------------X------------------------------------
62.25 X O
62.00 X O
61.75 X X X O
61.50 X O X O X O
61.25 ----------------X---X-O---------8-O-X-O-----X-------X--------------------
61.00 X O X O X O X O X X O X X O
60.75 X O X O X X X O X O X O X O X O X O
60.50 X O X O 7 O X O X O X O X O X O X O X O Med
60.25 X O X O X O X O X O O X 9 X O O * O
60.00 ----------------X-O-X-O-X-O---O-X-----O-X-O-------*---O Broke a triple
59.75 X O X O O X O X * O bottom and violated
59.50 X O O X O X * O the bullish
59.25 X X O X O X * support line.
59.00 X O X O X O X *
58.75 --------X---X-O-6-------------O-------O-*--------------------------------
58.50 X O X O X *
58.25 X O X O X *
58.00 X X O X O X *
57.75 X O X O X O X *
57.50 ----X-O-X-O---O---------------*------------------------------------------
57.25 X O *
57.00 X *
56.75 X * Bot
56.50 X *
56.25 ----X---------------*----------------------------------------------------
56.00 O X *
55.75 O 5 *
55.50 O X *
55.25 O X *
55.00 --O-------*--------------------------------------------------------------
USZ9 MONTHLY MOMENTUM
Date Top Bottom Last Cross
==================================================
Sep-99 0.00000 -0.00994 113.812 117.356 -Getting less and less negative and
Aug-99 0.00000 -0.01378 113.812 118.759 will turn to positive at 117.356
Jul-99 0.00000 -0.02230 114.500 122.663
Jun-99 0.00000 -0.04082 115.031 130.545
May-99 0.00000 -0.04486 115.593 132.810
Apr-99 0.00000 -0.04381 119.250 136.209
Mar-99 0.00000 -0.04143 118.906 134.783
Feb-99 0.00000 -0.04356 119.125 136.019
Jan-99 0.00000 -0.00806 125.156 128.166 -Turned over to negative in January
Dec-98 0.00804 0.00000 126.093 123.148 suggesting lower prices.
Nov-98 0.01739 0.00000 128.468 122.134
Oct-98 0.02207 0.00000 125.312 117.383
Sep-98 0.03877 0.00000 130.656 116.873
Aug-98 0.02180 0.00000 125.187 117.440
Jul-98 0.01538 0.00000 121.937 116.490
Jun-98 0.00849 0.00000 122.125 119.083
May-98 0.00244 0.00000 120.531 119.656
TYX MONTHLY MOMENTUM
Date Top Bottom Last Cross
==================================================
Sep-99 0.02387 0.00000 60.820 56.780 -Getting less and less positive and
Aug-99 0.03529 0.00000 60.820 54.925 will turn over to negative at 56.78
Jul-99 0.05828 0.00000 61.190 51.771
Jun-99 0.09577 0.00000 60.130 45.638
May-99 0.09833 0.00000 59.360 44.625
Apr-99 0.09131 0.00000 56.600 43.013
Mar-99 0.08465 0.00000 56.730 43.942
Feb-99 0.08127 0.00000 56.570 44.403
Jan-99 0.01061 0.00000 51.810 50.103 -Turned to positive in January,
Dec-98 0.00000 -0.01498 51.470 53.979 suggesting higher rates.
Nov-98 0.00000 -0.02418 50.520 54.596
Oct-98 0.00000 -0.03166 52.250 57.711
Sep-98 0.00000 -0.04901 48.910 57.497
Aug-98 0.00000 -0.01659 53.300 56.201
Jul-98 0.00000 -0.00038 56.580 56.647
Top of Report
UPDATE ON THE DOW UTILITIES
We have not focused a great deal of attention on the Dow
Jones Utility Average though it is an index which we follow. For those
of you who have our charting system, you can find this chart under the
ticker symbol of UTIL. Elsewhere in today's report is an update on the
30 Year Yield Index (TYX) which has recently broken down. Keep in
mind that this indicator moves inversely when compared to bonds. As
rates decline, bonds rise in price and vice versa. In other words, should
the TYX continue to move down, it would suggest higher prices for
bonds and in such a case we should see the Dow 20 Bond Average
move up and give a buy signal. Having said that, we want to reiterate
that so far the 20 Bond Average has not given a buy signal and at this
time we remain bearish on bonds. We will mention though that the
Bond High-Low Index recently reversed up from below the 10% level
and we have not seen a reversal from such a low reading since 1994.
In 1994 and into early 1995 we actually saw three such reversals - in
June 1994, July 1994 and in January 1995 - with the first two proving
to be false or early. We should point out that the 20 Bond Average,
after having been on a sell signal since November 1993, finally broke
out in the middle of January of 1995 and embarked on a strong rally
into July of the same year. So we would rather wait for a buy signal
from the 20 Bond Average before getting too aggressive here with
bonds.
The Utility Average has been called a surrogate for interest
rates for some time. We don't know if that will continue with the
deregulation of much of the utility industry. However, that is more a
fundamental story any way. At any rate, we wanted to take a look at
this index after the sell signal in the TYX and the upside breakout in
bond futures. A look at the chart below will show very weak action in
the Dow Utility Index since hitting its high in June at 336. Since then
we have seen three sell signals in the index with the latest coming at
308. That breakdown also led to a violation of the bullish support line
when the Utility Average fell to 304. We have since seen a drop in this
index down to 294, a decline of 12.5% from the chart high. However,
notice that this index is now entering an area where it has bottomed
previously. In other words, it is entering a support area. The 288-292
area is where the UTIL bottomed in February, March and April of this
year. This could be a positive so long as the UTIL does not violate that
support level. A move to 286 would take the Utility Index to new
yearly lows which would be a negative. We would like to see this
index try to build a base from which to rally and also to set up a buy
signal here at a lower price. Right now, the UTIL would have to rally
to 326 to break a double top. If it can rally to 300, pull back to 294 or
thereabouts, then a rally to 302 would break a double top. We don't
know if this will occur, but it will be worth watching.
The point we are trying to make is that we have seen a couple
of positives in the interest rate arena. Our main indicator, the 20 Bond
Average, has not yet given a buy signal and we will watch for that
rather than anticipate a buy signal. But that will be a close watch with
the decline in the TYX (remember, it moves conversely), the breakout
in bond futures and the move back to support by the Dow Utility
Average. You can see the chart of the Dow Utilities below.
Dow Jones Utility Average Chart
340 ----------------+------------------------------------------------
338 | *
336 | X * Top
334 | X O *
332 | X O *
330 ----------------+---------------------------X---X-O-----*--------
328 | X O X O *
326 | X O X O
324 | X 6 O X
322 | X O X X O
320 --O-------------|---------------------------X-----O-X-O-X-O------
318 O | X O X O X O
316 O X | X 7 O X O Med
314 O X O X 5 O X 9
312 O X O X X O X 8 X O
310 --O-X-O-----X-O-C-O-------------------------X---------O---O------
308 O X O X O X 1 X X O
306 O X O X O X O X O X X O
304 O X O X B O | O X O X O X * O
302 O X O X O X | O O X X O X * O
300 --O---O-X-O-X---|-----O-X---X-O-X-O-----X---X-------*-----O------
298 O O | 2 X O X O X O 4 X O X * O
296 | O X O X O O X O X O X * O
294 | O X O X O X O X O X * O Bot
292 | O X O X O O O *
290 ----------------|-----O-X-3---------------*----------------------
288 | O
286 |
284 |
282 |
280 ----------------|------------------------------------------------
9|9
8|9
|
