US 30 year Bonds with 20 day Lag Indicator
In this post, I would like to put forward a US Bond market hypothesis. Interested?
In fundamental terms there is definitely a connection between the Emini and the Bond market. When interest rates fall Bond prices rise and falling interest rates are bullish for the stock market. So you would expect the equities market to mirror trends in the Bond market. However, if you look at a long-term chart of the S&P 500 and compare it with 30 year Bonds – they do look different. So this relationship does not hold all of the time.
What I have found though is that turns in the Bond market precede turns in the equities market and the lag is somewhere around 20 days. I certainly don’t use this observation as a means to trade, but I do keep it in the back of my head. 20 days ago the 30 year Bond market peaked, consolidated for a week and a half before dropping quite precipitously. The Bond chart is shown above with a solid blue line indicating 20 days ago.
The Fed policy statement came out today and as usual I didn’t bother to read it. The lack of activity that we saw in the morning was the market waiting for this release and once that was out of the way the market was able to make a clean break upwards. Days like this affect traders differently – some enjoy the unusual volatility and trade like demons, while others step away and don’t bother to trade at all.
In the end the Emini closed up 4.5 points at 1,389.25. Today’s action was almost identical to yesterday’s. The Emini opened down 2 points at 1,382.75 and then dipped during the morning to hit a low of 1,381.25. Once again the Emini rallied quite strongly in the afternoon to hit a high of 1,389.75 by the end of the day and closed at the highs. Both range and volume were again below average at 8.5 points and 900,000 contracts respectively.
Did we make a stealthy top today or will we make one tomorrow. It’s possible – if the Bond market is right and the 20 day lag hypothesis holds true. Let’s test this observation over the next couple of weeks and see if my hypothesis has any merit at all.
Follow this link to read an article on the relationship between the Emini and the Bond market.