From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Not all stressors are debilitating.

In some cases, stress can push us to perform at our highest level. But, of course, there are instances when opposing forces become overwhelming, making it near impossible to reach our goals.

We’ve all been there.

And the markets are no different.

While we keep tabs on our heart rate or blood pressure to gauge our stress levels, we focus on credit spreads to measure stress in the market.

Given that rates continue to rise worldwide, it’s an appropriate time to evaluate these spreads and the potential obstacles that may lay ahead for risk assets.

We recently broke down credit spreads in anticipation of them widening and outlined some charts that are driving this trend.

Read our January 27 post for more information about the ins and outs of credit spreads and how we analyze them.

Since these spreads provide valuable information on the health of the overall market, we’re going to check back in and discuss another chart that is on our radar. 

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The middle of the curve is catching higher as the US 10-year Treasury yield pushes toward its next milestone at 2.00%.

Now that we’re starting to see some follow-through to the upside, it raises the question…

Are these new highs in the 10-year sustainable?

With inflation expectations just off their highs, short-term rates surging in the US, and yields ripping higher across the globe, we think the answer is a resounding yes! 

A few weeks ago, we discussed how global yields -- particularly those in developed Europe -- were confirming the new highs for US yields.

Since then, we've only seen this trend accelerate. With central banks turning increasingly hawkish, rates continue to break out to new highs around the world.

Today, we're going to dive further into this theme by taking a look at a handful of benchmark rates outside the US. 

Let’s dive in!

First up is the German 10-year:

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

In April 2020, crude oil traded below zero and marked the perfect capitulation event for a number of trends.

Around the very same time, both commodities and stocks bottomed and kicked off major rallies.

Until recently, commodities had underperformed stocks for about a decade. To make matters worse, they were moving lower on an absolute basis for most of that time as well. 

Not only have commodities started to trend higher on an absolute basis again. They're also undergoing a reversal in their relative trend with stocks and other alternatives.

We’ve been clear about our bullish position as we’ve discussed the potential for a new commodity supercycle for over a year. 

Now, we want to take that thesis one step further as the evidence is building in favor of commodities experiencing a sustained period of outperformance relative to stocks.

To best take advantage of this trend, we want to be overweight commodities and commodity-related stocks.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The path of least resistance is higher for yields, as the market continues to punish investors for buying bonds. 

As long as that’s the case, we want to look for short opportunities when approaching the bond market.

Since the shorter end of the curve has ripped higher, the moves in these contracts and ETFs are extended. They simply don't offer favorable risk/reward trade setups at current levels.

We’re better off looking for ways to play rising yields further out on the curve in this environment. 

We’re going to discuss how to do just that by covering a few charts that are setting up on the short side.

First up is the 30-year Treasury bond futures:

T-bonds are carving out a multi-year head-and-shoulders top above their pivot lows from last March.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley  

The Federal Reserve is doing its best to prepare the market for what is expected to be a year of rate hikes. But investors aren’t exactly enthusiastic about this outlook, as stocks came under further pressure following Wednesday’s Federal Open Market Committee announcement.

The bond market is also offering some valuable information again. And considering the recent volatility, it’s more important than ever to listen closely.

When we think about bonds, credit spreads are always top of mind, as they’re a great barometer of market health. When there's stress on risk assets, it shows up in credit spreads. 

When analyzing credit spreads, all we’re doing is measuring the difference in yield between a Treasury (the safest bet) and a corporate bond (riskier asset) of the same maturity. If these spreads begin to widen, it’s usually problematic for equities.

As we progress into Q4 of Fiscal Year 2021-2022, this playbook outlines our thoughts on every asset class and our plan to profit.

This playbook will cover our macro view, touching on Equities, Commodities, Currencies, and Rates, as well as outline our views on the major nifty indices and the sector/thematic indices.

We also cover individual stocks we want to be buying to take advantage of the themes discussed in the playbook.

Bonds & Commodities. That's what the stock market bulls still have left.

But why do Futures matter to stock traders and investors?

Because the bond market and commodities market combined are waaaaay bigger than the stock market.

It starts with the information we're getting from futures markets, and then it trickles down to everything else from there.

With the stock market losing key support in the Nasdaq, S&P500, Small-caps, Transports and Bitcoin, what's left?

I think these 2 are what the bulls have left....

From the desk of Steve Strazza @Sstrazza

Tuesday night we held our January Monthly Conference Call, which Premium Members can access and rewatch here.

In this post, we’ll do our best to summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each.

Let’s get right into it!

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

There have been some fireworks to kick off the new year. One of the biggest developments in 2022 has to be the US 10-year yield breaking to its highest level in two years.

The direction in which yields resolve from their 2021 consolidation will impact all the major asset classes, including bonds, stocks, and commodities. We’re already seeing procyclical assets catch an aggressive bid as the 10-year flirts with an upside resolution.

For now, the path of least resistance is higher. But we still need to see follow-through and confirmation before we can be comfortable that these new highs are here to stay.

When we look at the international bond market, it’s not just domestic Treasury yields that are on the rise. We’re actually seeing rates make new highs all across the developed world.

This is our ASC Research Q1 2022 Playbook.

With the current market environment giving us many mixed messages, what better time to dive in and see what's happening underneath the surface?

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