From the Desk of Ian Culley @IanCulley

Credit spreads are the canaries in the financial market coal mine.

They’ll peep at the first sign markets face serious risks.

With stocks entering a corrective phase, it makes sense to seek information from the biggest exchange in the world.

The bond market.

Credit spreads remain tight despite increased selling across US equities.

That’s the opposite of what I’d expect during a severe selloff.

What does that tell us?

Check out the overlay chart of the Russell 2000 ETF $IWM with the high-yield credit spread ratio, $HYG/$IEI:

We’re having loads of fun with What the FICC?

Spencer and I talk about high-level intermarket trends, whatever markets catch our attention, and things that fly under the average investor’s radar.

Bill Baruch, the founder and president of Blue Line Futures, will join us tomorrow to share his insights on trends and markets.

I’m a big fan of Bill’s and the entire team at Blue Line – a consistent source of clarity. And I know Spencer’s dying to discuss yields…

It’s going to be a good one! Be sure to tune in tomorrow at 11:30 a.m. ET.

If you missed yesterday’s show, here’s a quick recap…

From the Desk of Ian Culley @IanCulley

Are investors really buying bonds, betting on a squeeze higher?

Perhaps it’s just my Twitter feed. (Or are we calling it "X" now?)

I’m perplexed by the growing chatter around picking the bottom in bonds.

Warning: Picking bottoms is never a good look.

It’s unbecoming, especially when there are zero signs of a reversal. (The same applies to tops.)

I understand the Nasdaq 100 had its best first half – like, ever.

But what does that have to do with yield charts?

Rates continue to rise worldwide.

Here’s a look at Germany, France, Portugal, and US benchmark rates:

All are steadily grinding higher following explosive advances last year. Yet none have decisively resolved to the upside from their respective multi-month ranges. 

From the Desk of Ian Culley @IanCulley

Rates are on the move again.

The US 30-year Treasury yield $TYX cleared numerous hurdles this week. 

It broke above a shelf of former highs, climbing to its highest level year-to-date. And, perhaps more importantly, it reclaimed its former 2014 high.

Add a potential failed breakdown in the US dollar index $DXY, and it’s starting to feel a lot like 2022.

But should we expect another bloodbath?

…Not necessarily.

Here’s a quick look at the US 30-year yield resolving higher from an 8-month consolidation:

This is the video recording of our August 2nd Monthly Charts Live Strategy Session

From the Desk of Ian Culley @IanCulley

FOMC meeting?

No worry, beef curry!

The markets barely flinched after the Fed raised interest rates – again. 

Honestly, I didn’t tune in to the press conference. I prefer to focus on the tape.

So you won’t get a rundown of Jerome Powell’s forward guidance, or lack thereof, from me.

I can only relay the information provided by the market.  

Obviously, the rising-rate environment remains intact amid sustained inflationary pressures – “higher for longer.”

We can all agree on that.

The true value from Wednesday’s events resides beneath the headlines…

Investors are adjusting to a new rising-rate regime as they accept the unavoidable: inflation.

The US 10-year breakeven inflation rate is shaping up as a potential “not a top” formation:

From the Desk of Ian Culley @IanCulley

Bonds are breaking out!

Yes… Bonds!

No, I’m not talking about US Treasuries. Those “risk-free” assets have plenty of work to do before I can take an informed long position.

I’m referring to corporate bonds. Remember, companies have numerous ways to raise capital besides selling shares – bonds being one of them.

But they're not your run-of-the-mill corporate bonds flashing a buy signal…

They’re the issues investors can convert into equity.

Check out the Convertible Bond ETF $CWB:

CWB has traced a classic bullish reversal in price as it completes a yearlong basing formation.

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

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

Let’s get into it!

We interrupt this raging bull market to update you on some historic positioning in the bond market that is sure to impact your portfolio, whether you like it or not.

Even if you don't trade bonds, this is really really important.

You see, I know it's easy to sit back and chill out with the S&P500 making new 52-week highs, the Dow Jones Industrial Average and Dow Transportation Average making new 52-week highs and, of course, the Nasdaq100 making new 52-week highs after posting its best first half to a year EVER.

Market breadth continues to expand and sector rotation is frustrating the hell out of anyone trying to short this market.

The thing is, what even changed?

What happened that stocks have absolutely been ripping higher since last year?

Positioning.

It's not the economy that drives stocks. It certainly isn't fundamentals.

It's positioning.

This is the video recording of the July 2023 Mid-month Conference Call.

It's hard for me to have a conversation about the stock market without bringing up what's happening in bonds.

Think about it like this, the market cap of all US Stocks is somewhere around $40 Trillion. For the bond market it's over $120 Trillion.

Volatility in bonds tends to trickle down to other asset classes, especially stocks.

US Stocks really got going in the 4th quarter last year, once the US 10-year Note stopped falling in price.

I don't believe that was a coincidence.

But at this point, Large Speculators have on their most aggressive short position in bonds ever.

So in other words, what is historically the "dumb money", particularly at turning points, are betting more aggressively than ever that bond prices are going to fall and rates will now continue higher:

From the Desk of Ian Culley @IanCulley

"Sell the two… Utah! Sell the two!"

I’ve parroted my bond outlook during internal meetings and across our Slack channels in recent weeks, partly in jest but mostly to highlight the underlying uptrend in rates. 

Honestly, I’m not crazy about selling the short end of the curve, though I believe there’s a trade there.

Instead, there are far better opportunities with longer-duration bonds.

Shorting bonds isn’t the most popular play with the Fed and the dollar and the CPI… 

But that makes me like this trade even more, especially when I put the headlines and the dominant narrative aside and simply focus on the charts…

Check out the 10-year yield $TNX: