Morning Comment: More reasons why the Treasury market stands at a critical level.....David McCulough.

We’ve seen some big intraday swings in the S&P 500 so far this month, but it’s funny how it tends to still close near the “unchanged” level on most days. In fact, the SPX is pretty much unchanged since the last day of trading in July. Of course, we’ve only had six days of trading so far this month, so it’s still early. Besides, this all-important index had rallied more than 5% over the last 3 day of trading in July (after already rising 7% before those last three days in July)…so the fact that it hasn’t done much so far this much is not a concern at all. In fact, it could be views as a healthy “breather”…that is merely helping the stock market digest its strong gains from the summer rally.

It is our guess that today will be an uneventful one. We have the big inflation number (CPI) coming tomorrow morning…so we could see investors and traders sit on their hands today…much like they did last Thursday (the day before the big employment report). Despite the fact that the market has seen several days with some big swings, last Thursday was not one of those days. It gave us the tightest range for the S&P all year…as people waited for the employment report. We could/should see similar action (or inaction) today.

The futures are trading a bit lower today…after the negative pre-announcement out of Micron (MU). This follows a similar announcement from Nvidia (NVDA) yesterday…so there is a real chance that the market will not be able to stay within a tight range today. Instead, it could see some weakness given how important the chip stocks are to the broad market. (“Sell the news” on the signing of the “Chips Act.”???)

Having said this, tomorrow’s CPI data could/should still be very important for the stock market, but one of the reasons it should be important for the stock market is because it should be important for the bond market as well! As we have highlighted several times in the last week, the yield on the 10yr note sits at a critical level. It is sitting on the “neck-line” of a “head & shoulder” pattern…and thus its next significant move should be very important as to the direction of long-term interest rates over the intermediate term. We say this because when any asset breaks meaningfully below a “neck-line” of an “H&S” pattern, it usually falls quite a bit further. However, if the “neck-line” holds…and the asset bounces off that line in a material way, it is usually followed by a significant further bounce over time.

Right now, it looks like the yield on the 10yr note is setting up for a strong bounce off of that “neck-line,” not a significant break below it. The first reason we say this is because the 10yr yield is now breaking slightly above its trend-line from the June highs (of 3.5%). The second…and more important…reason is because the MACD chart on the 10yr yield is seeing a positive cross.

Having said this, both the break above the trend-line and the positive cross have only been very slight ones so far. Therefore, we’re going to have to see more upside follow-through in long-term yields to confirm that they’re going to resume the upward move they experienced over the previous six months. THIS is why tomorrow’s inflation data should be extremely important. If it is strong enough to push these rates further above their key levels…or weak enough to reverse their recent moves in a major way…it should indeed give us an answer to the question about where interest rates are headed over the next several months.

Needless to say, if the answer is that rates are going to roll back over and resume their decline that began in mid-June, it should be quite bullish for stocks. If, however, the answer is that long-term rates are going to resume their climb from earlier in the year, it’s should be bearish for stocks (and brutal for those who have been buying the meme stocks again recently).

Of course, the CPI (and PPI on Thursday) report could come right in-line…and thus they might not have much of an impact at all. That, in turn, would leave us to focus on something else to guide us on the interest rate front. (The Jackson Hole confab later this month would become the likely candidate.) However, there is a solid chance that this week’s inflation data will have an important impact on how the markets act between now and Labor Day (and beyond).

Finally, we were saddened to hear that David McCulough has passed away at the age of 89. He is very well known for his Pulitzer Prize winning biographies, “Truman” and “John Adams.” We loved both of those books (especially “Truman”), but we also enjoyed several others. His books, “The Path Between the Seas” and “The Wright Brothers” were fascinating. However, our favorite is, “Mornings on Horseback.” This biography about a young Teddy Roosevelt is a must read for anybody who enjoys history. (It’s also a must read for anybody who wants to run for President.)……Mr. McCulough was an American gem. He will be sorely missed by those of us who love American history.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


  1. Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.
Posted to The Maley Report on Aug 09, 2022 — 8:08 AM
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