Stocks gained today as sentiment flip-flopped throughout the trading session. The Dow, S&P, and Nasdaq Composite all finished higher despite a midday dip. Treasury yields also advanced, though, calling into question whether this afternoon’s gains would hold.
Treasurys fell again today as represented by the iShares 20+ Year Treasury Bond ETF (NYSE: TLT), which tracks longer-term Treasurys. TLT broke its minor bullish trend (yellow trendline) in late October just two sessions after closing above the 10-day moving average.
Many bond dip-buyers were caught with their pants down as TLT reversed, eventually closing below support which was set last week. TLT technically triggered a bearish position today as it fell.
One of the big reasons TLT gave us a false bull setup was that it didn’t first set a higher low before crossing above the 10-SMA. During protracted selloffs, bull setups don’t mean much unless they’re preceded by a higher low. Following that rule for most stocks this year would have kept traders out of trouble while allowing them to participate in some of the recent bear market rallies, all of which followed the setting of higher lows.
The same could be said for TLT, which hasn’t really set a higher low since November 2021. It’s been all downhill for bonds this year. Because of that, bearish continuations – not bullish reversals – should be favored for TLT.
And that’s also why another equity-breaking bond selloff may almost be here. Every time that stocks have rallied this year without being joined by bonds, the rallies ultimately failed very quickly after they began.
Stocks closed higher today. Long-term bonds did not.
That’s a good reason for bulls to be wary, especially after TLT triggered a bear trade today.
But outside of TLT, other bear setups emerged today.
Utility stocks – like Centerpoint Energy Inc (NYSE: CNP) – almost plunged lower today before recovering into the close for smaller losses. CNP did trade below its 10-day moving average, though, after setting a lower high relative to last week’s high.
The stock broke its recent uptrend (yellow trendline) as well and the stochastic indicator suggests the stock has plenty of room to fall before it hits oversold territory.
For those reasons, it might make sense to take a bearish position on CNP with a trade trigger of $27.06, below today’s low, as the general market awaits the midterm election results.