The market finished the day with a decent gain yesterday, but it closed well off its early afternoon highs. The gain also came on lower volume and mediocre breadth (2.4 to 1 positive on the S&P 500)...so the action so far this week is a bit concerning......The action last week was quite impressive, so the market still looks fine right now, but we’ll continue to monitor the “internals” of the market to see if it’s going to deteriorate in a more meaningful manner in the days ahead......It seems like the market has become a hostage to the silliness that is going on in Washington DC...as the leadership on both sides is trying to convince voters that they DO care about their struggles in front of the election...when neither side seems to really want to get a deal done.
The bond market saw a material move yesterday...as yields moved higher and the U.S. 10-year yield has risen to 0.81% this morning. Of course, if you look at a multi-decade chart, those yields are still ridiculously low. However, there is also no question that the 10yr yield has been building a nice “base” over the past 8 months. Therefore, if (repeat, IF) we see a further rise in long-term rates...that becomes a bit more steady rise...it’s going to signal an important change in trend for interest rates that goes back to at least late 2018.
The level we’re watching is the 0.90% level. A significant move above that level would take the 10-year yield above its trend-line from late 2018 (when the Fed did their famous “pivot”)...and it would also give it its first “higher-high” in almost two years! In other words, even though a 10-yr yield at or very near 1% on the U.S. 10-year note would be extremely low on an historical basis, it would still signal an important change in trend......As always, we HAVE to wait for an actual break to take place before we can declare a change in trend, but it’s something we’ll be watching VERY closely after the election. If it does indeed take place, it’s going to have important implications for many areas of the stock market (especially the banks).
Finally, we want to touch-on the technical outlook for NFLX. As we all know by now, they reported disappointing earnings last night...and the stock is trading more than 5% lower in pre-market trading. This means that NFLX has once again failed to break above its critical resistance level of $550 that we highlighted in our weekend piece (for the third time). In the chart below, we have drawn what the stock will look like if it opens at the level it is trading at as we write (just below $500). This decline has taken it slightly below its trend-line from the March lows. Of course, it might bounce-back strongly once the market opens, but if it does not, it’s going to raise a yellow flag on the stock.
That said, a move down to that trend-line will not be a disaster...as long as that trend-line holds! If, however, it breaks below that line in a more significant fashion any time over the next few trading days, it’s going to change the flag from a yellow one to a red one...and make it likely that NFLX will test its summer lows in the coming weeks. (Second chart below.)
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Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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