The Treasury Market is at a Key Juncture...With Inflation Data Coming This Week.

We have been away from the markets for a few days, but not a lot has changed in the stock market. It continues to rise in a steady fashion…as the bulls still have a tight hold of the reins. We have seen a shift in sentiment, however. As we highlighted last week, we have gone from a situation where bullishness was very, very low at the beginning of October…to one where it is quite high once again.

For instance, the Investors Intelligence data shows bullishness has jumped from 40% to the mid 50’s over the past 4-5 weeks…and the DSI data shows that bullishness among futures traders has jumped all the way to 93%. (In fact, it has been 93% for each of the past two days on the Nasdaq.)…..We also have a plethora of people calling for a “melt-up” in the stock market into the end of the year. We highlighted three firms who used that term last week…and we heard two more talk about it over the weekend. (These two newer ones did not use the term “melt-up”…but they’re calling for 5,000 on the S&P 500 by year-end, so that’s still in the “melt-up” territory…after a YTD move of +25% already.)

Of course, just because a lot of people have become bullish (many of them VERY bullish) does not mean that the market cannot rally further for a while. There are certainly several reasons to think that it can. However, there is no question sentiment is now something that belongs on the bearish side of the bull/bear argument.

A lot of people will be focused on the impact that TSLA may have on the Nasdaq. It is 6.4% of the NDX Nasdaq 100 and it is down 4%-5% in pre-market trading. We’d also note that two other stocks with very large weightings in the NDX are very overbought. The RSI reading for NVDA and MSFT are 87.6 and 78.2 respectively. Therefore, if they start to decline this week as well, the Nasdaq could/should finally take at least a short-term breather. To be honest, this is something the bulls should be hoping for. This part of the market has become quite overbought near-term…and the odds that we’ll see strong rally into the end of the year will actually rise if this area of the marketplace takes a (normal & healthy) breather to digest its gains at some point soon.

On a side note, we’d just like to say that anybody who thinks that Elon Musk didn’t know in advance that it was HIGHLY likely that the “twitter vote” would tell him to sell some stock are kidding themselves. Everybody in Mr. Musk’s position has pollsters that they use quite frequently. So he knew the outcome in advance……It was just a way for Musk to sell some shares without spooking the market as much as it might otherwise spook it…..Yes, tax issues certainly played a part in his decision, but if he thought that TSLA was going to rally another 197% over the next 12 months…like it has over the past 12 months…he’d be holding on to 100% of his shares………As the old saying goes, insiders sell for a reason…and it’s never with the thought that the shares can rally a lot further over the intermediate-term.

Away from some big-cap tech stocks, investors will be focused on the inflation data coming out this week. We get the PPI data tomorrow and the CPI numbers on Wednesday. It will be very interesting to see how this impacts the bond market. The yield on the 10-year Treasury note broke below the “neck-line” of a “head & shoulders” pattern late last week. It has bounced off its 200-DMA this morning, so we’ll see if the upcoming inflation data changes the near-term trajectory of the Treasury market. In other words, if the data is strong…and the 10-year yield bounced back above its “neck-line” (at about 1.54%), it will show that both the short and intermediate-term trend for long-term interest rates are still intact. However, if the 10yr yield falls below its 200-DMA, it will signal that the near-term trend has moved to the downide.

Needless to say, this could have an important impact on the broad stock market. However, it could/should also have an impact on the bank stocks (and other financials). A further decline in yields could/should cause the financials to pullback over the near-term……..Don’t get us wrong, the longer-term charts all point to higher interest rates (and likely higher bank stock prices) in the months ahead. However, if the long-term yields fall again this week, it would signal that the short-term trend has reversed for the time being.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Nov 08, 2021 — 8:11 AM
Comments ({[comments.length]})
Sort By:
Loading Comments
No comments. Break the ice and be the first!
Error loading comments Click here to retry
No comments found matching this filter
Want to add a comment? Take me to the new comment box!