Hey, Ross here:
And let’s look at what the bond market may be telling us about what’s to come for stocks.
Chart of the Day
This is the chart for the 10-year US Treasury yields this year – which are now standing at the highest they’ve been in 15 years.
On top of that, the pattern clearly shows yields breaking out higher, meaning we could see yields at 4.5% very soon – especially with the Fed saying inflation risk is still “significant”.
Of course, just because yields move higher doesn’t mean stocks go down. It’s more complex than that.
Rising Treasury yields means Treasury prices are falling as investors sell them in favor of higher-return assets – such as stocks.
But it also means that stocks have to “compete” with the higher yields now offered by bonds, which may cause a rotation out of stocks. Higher yields also mean a higher “discount rate” when calculating present value – which can impact stock valuations.
In short, even though yields are likely to break higher, their effect on stocks is really a mixed bag.
The most important question is – what can we as traders do about it?
And that’s what I try to answer in the Insight of the Day.
Insight of the Day
If the market’s price action has yet to become definitive, the best move may be to pivot to a strategy that is less dependent on price action.
If you’ve been reading this newsletter for more than a few weeks, you know I’m a price action guy.
In my view, price action is the BEST indicator of which stocks to target and when to do so. That’s why most of my strategies are based on targeting potential breakouts based on price action.
But if the price action is simply not definitive – as it is now – then the best move is to just pivot to a strategy that isn’t based on price action, even if temporarily.
Embrace the surge,
Editor, Stock Surge Daily