Euclid Investment Advisory Blog

Review & Analysis at Close February 14, 2022

Comments

We are closely watching the 10-year US Treasury Yield using a weekly chart. Last week the Yield rose slightly above 2%, fell back and settled at 1.996 on Monday. There is overhead resistance at 2% from the Q4 2020 period. Also, the 2-year-10-year US Treasury Yield spread narrowed sharply last week, moving well outside and below its lower envelope band which contains 95% of its movements.

Equities

Another week of volatility. Relief rallies run into trend lines which continue down. VIX rose to 28.3. The Russell 2000 is showing signs of life. The Advance Decline line of the S&P 600 is increasing, and usually leads the S&P 500 data particularly in up directions.

  • Equity Style Tech Score Ranking: Value stocks reversed and now lead Growth stocks in one-week ranking; Large, mid- and small cap Growth now laggards.

  • Sector Tech Score Ranking: Energy, Financials and Consumer Staples lead in one-week ranking; Industrials, Real Estate and Communication Services lagging.

Bonds
The uptrend of the 10-year US Treasury yield hit resistance at 2% established in Q4 2019, and fell back. This level may result in a (brief?) stall in rate rise. Should a stall occur, Tech & Large Cap Growth (which are negatively correlated to interest rates) should rally.

Momentum indicator shows negative divergence. Bonds are getting hammered.

The 2-year US Treasury yield surged to 1.58 from 1.30 last week. The Yield Curve's flattening increased since last week. The spread narrowed to 0.40 from 0.62 last week. The 12 and 26 week trend lines are rising. However, on a daily chart there is a negative divergence between the Yield and the indicator. Generally, but not always negative divergences are validated.

 

Currencies
Currencies vs. US Dollar: The Euro appears to have bottomed and turned up on the February 3 European Central Bank's announcement to raise rates.

US Dollar vs. basket of major currencies: The Dollar pulled back February 3; the US dollar rise appears to be topping out.

The Gold ETF "GLD" rose sharply but still remains in long-term trading zone of 164 to 174.5.

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