Treasury Market Sees a Dead Cat, and It's Bouncing



After Treasury notes and bonds took a tumble into April, sentiment soured, and inflation was on the tip of seemingly every investor's tongue.

That has quieted down quite a bit in recent weeks as economic data has been mixed and yields retreated from their highs. If yields are declining, that means note and bond prices are rising.

For 10-year Treasury notes, the rally off the bottom has gone 65 days. Some old trend-following systems suggested that if a market goes this long without setting a new low, then the trend has changed. 

10 year Treasury futures rebound

What's notable about this rally, though, is that it has a 'dead cat' feel to it. Note prices haven't even bounced 2% from the low, making it the 7th-weakest rally since futures began trading 30 years ago. 

After these 'dead cat' bounces, there was a consistent tendency for notes to revert to a downtrend. Over the medium-term, prices continued to rally only once. All the other signals showed a loss on one of the multi-month time frames.

When we contrast that to times when notes had stronger rallies, at least 3.5%, then there was quite a big difference in future returns.

For stocks, weak rebounds in 10-year Treasuries didn't mean much. The S&P 500 showed mixed returns in the months ahead, as did most sectors and factors, with only a few standouts.


What else we're looking at

  • Full returns in 10-year Treasuries after 'dead cat' bounces
  • Detailed returns after these signals in the S&P 500, sectors, and factors
  • Investigating a potential options trade in the EEM emerging markets fund based on a recent signal
  • Taking a peak at seasonality in the yen
  • There has been an upside reversal signal in an often-overlooked industry that has an 83% win rate

Stat box

On Thursday, there were 75 more 52-week lows than 52-week highs on the Nasdaq, within 7 days of the Nasdaq Composite closing at a record high. This triggers a technical warning sign that has tripped only twice before in the past year, in September 2020 and April 2021.

Etcetera

Call off. Large traders have been buying call options to open at a steadily increasing pace since 2016, and have now tied for their second-highest percentage of total volume in over 20 years.

large trader call buying

Skyrocket. Rydex Technology Assets have gone vertical, jumping from $61 to $104 million in a day. Somebody's betting that tech stocks are going to keep soaring.

rydex technology mutual fund assets

Drain the rink. The Canada Fund Flow saw its largest withdraw since 2009, with the EWC fund losing more than $400 million in a single day.ewc canada fund flow

The post titled Treasury Market Sees a Dead Cat, and It's Bouncing was originally published as on SentimenTrader.com on 2021-07-09.

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