This is the video recording of the September 2022 Mid-month Conference Call.

We discussed:

• What's the Bear Case?
• One of worst starts to year for 60/40 portfolio in history
• The impact of the US Dollar on Stocks
• No lows list peaked 3 months ago
• Best time to buy stocks in the 4 year cycle
• Bearish sentiment persists
• ARKK and Biotech stopped falling in May
• S&P500 stuck below resistance 4100-4200
• European Banks show relative strength
• Midstream Stocks Breaking out - the full list
• Corn, Soybeans and Wheat with huge bases
• Silver bullish divergence vs Gold
• Other Emerging Markets outpacing China
• Small-cap Industrials stocks that are breaking out
• 1-yr yield highest roc in 40 years
• The Flippening Is Real
• List of best trade ideas

From the Desk of Ian Culley @Ianculley

Interest rates have resumed their ascent following a brief summer pause. And, in recent weeks, their climb has accelerated.

Aside from lower bond prices, what do higher rates mean for other assets, such as stocks and commodities?

It might seem like a simple question. But its relevance is undeniable given the current market conditions.

We’ve been vocal about the cyclical areas of the market that benefit most from a rising rate environment – think commodities, energy, materials, and banks. We’ve put out plenty of trade ideas in those areas.

But not all risk assets enjoy a tailwind when yields rise.

Higher rates mean downside pressure for long-duration assets in general, not just bonds. This also includes growth stocks!

Check out the chart of the US Treasury Bond ETF $TLT overlaid with the growth-versus-value ratio:

From the Desk of Ian Culley @Ianculley

After Federal Reserve Chair Jerome Powell’s remarks this morning, the market is pricing in an 86% chance of a 75-basis-point hike later this month. 

Meanwhile, rates continue to accelerate at the short end of the curve. That’s been the story for months now. 

But will the middle and long end of the curve head higher as well?

According to the two-year US Treasury yield, the answer is a resounding "yes!"

Short-duration rates offer plenty of valuable, leading information regarding US Treasury yields.

We’ve leaned on the five-year yield throughout the current cycle as an early indication of the direction of the 10- and 30-year. It’s proved a beneficial practice.

Today, we’re going to drop it down a notch, extending the same logic to the two-year yield.

Here’s a quad-pane chart of the two-, five-, 10-, and 30-year US Treasury yields:

This is the video recording of our September 6th Monthly Charts Live Strategy Session

I was back on The Compound & Friends podcast this week with Josh and Michael.

They're both old friends of mine, so it's just us arguing and yelling at each other for an hour.

Always fun.

Hope you enjoy!

From the Desk of Ian Culley @Ianculley

Heading into Q3, we wanted to play a mean-reversion bounce in US treasury bonds. A long list of reasons supported this position:

• US Treasuries experienced their worst H1 in history (or close to it).
• Bonds were finding support at their previous-cycle lows from 2018.
• Commodities and inflation expectations peaked earlier in the spring.
• Assets that benefit from rising rates (financials) were making fresh lows.
• Global yields were pulling back.

And, quite frankly, our risk was well-defined. We can’t ask for much more. For us, the greater risk was not taking a swing at this trade in the event bonds ripped higher…

Two months later, bonds across the curve are taking out their 2018 lows. The market has proven our mean-reversion thesis wrong. But we can live that because we manage risk responsibly.

It’s the most important part of playing this game.

Easily, the second-most important is to remain flexible.

From the Desk of Ian Culley @Ianculley

Identifying trends is one of the most important jobs of a market technician. Regardless of our time horizon, we have to understand the general direction the market is taking.

It sounds simple, but it’s the foundation of any market thesis.

Once we have the underlying trend nailed down, we can focus on the areas of the market we want to exploit and pinpoint the best tools and strategies to do so.

When I think of the most critical trends to date, my mind immediately goes to interest rates. Rising rates and inflation have been the key drivers for two years now.

Despite some corrective action in recent months, the bond market has been reminding us that we’re still in a rising-rate environment.

Let’s take a look.

First, we have an overlay chart of the US 10-year breakeven inflation rate and the US 10-year yield:

From the Desk of  Ian Culley @Ianculley

The market environment has been shifting in favor of the bulls all summer.

Breadth thrusts are firing as participation beneath the surface expands. Risk assets – commodities and stocks alike – are reclaiming critical levels of former support.

And our bull market rebirth checklist is triggering four out of five criteria.

This is a huge departure from earlier in the year.

But one aspect of the environment remains the same – interest rates. Yes, rates have come off their June peak. And, yes, US yields have paused at a logical level marked by a series of former highs.

That’s all true, and it all makes perfect sense.

But we still find ourselves in a rising-rate market as the underlying uptrend remains intact – for now.

Earlier in the month, we broke down the ranges in the 30-, 10-, and 5-year US yields. Today, we'll turn our attention overseas.

From the Desk of  Ian Culley @Ianculley

More pieces of the puzzle are falling into place for the bulls.

We’ve been pounding the table about the dollar and rates for months, and now they’re starting to take shape.

On Wednesday, the US Dollar Index $DXY broke to fresh lows, violating a multi-month trend line.

And interest rates… well, they haven’t moved much. They continue to hold their range after peaking in June. 

As expected, stocks surged yesterday in response to a weaker dollar and stable bond market. 

But stocks aren’t the only risk assets on the rise. Investors are moving out on the risk curve and bidding up high-yield bonds, too.

Here’s a dual-pane chart of the Fallen Angel High-Yield Bond ETF $ANGL and the S&P 500 Index $SPX:

From the Desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

It’s been an action-packed year for the bond market. Rates have ripped, and bonds have been in free fall worldwide. But US yields stopped going up in June. 

More recently, many European benchmark rates have turned lower in dramatic fashion.

Now the question is whether US yields will roll over and follow to the downside.

Instead of getting caught up in the Fed chatter and all its implications, let’s focus on the key levels we’re using as a roadmap for treasury markets in the coming weeks and months.

Here’s a triple-pane chart of the US 30-, 10-, and five-year yields:

All three are carving out potential tops just beneath their respective 2018 highs. You can see the tops in the chart above.

And those critical 2018 highs are highlighted below: