foxex: Bonds Retreat but Market Still Shows Anxiety

Monday, August 19, 2019

Bonds Retreat but Market Still Shows Anxiety

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Monday, August 19, 2019

1. Bond Market Prices Pullback but Nervous Investors Buy into Dip

2. Bellwether Stocks Display Conflict Between Buyers and Sellers

3. Gold Stocks that Outperform Gold

Market Moves

U.S. stocks jumped higher in price to start the trading session today while bond prices fell, marking a cautious optimism about the potential for the market to rally in the days to come. However, throughout the trading session several key signs emerged to hint that investors are indeed quite cautious still. While several of the day's market bellwether stocks closed higher than they opened, many showed signs of late session selling and, in many cases, traded on the lowest volume in a month.

These signs of nervousness were clearly on display in the market for U.S. Treasury Bonds. Bond-tracking ETF (ticker symbol TLT), which has shown a stunning run since the first of August, showed a significant gap down in price to start the trading day. Such a move would likely signal that investors were not as worried this week as they have been the previous two weeks. However, as the trading session wore on, the price of bonds increased, demonstrating that many investors remain unconvinced that stocks can rebound from recent drops.

Bellwether Stocks Display Conflict Between Buyers and Sellers

Broad market indexes and bellwether stocks all gapped higher to begin today's trading session. Of the top 25 stocks which most heavily influence the stock market's major sector indexes, the four whose shares showed the best returns for the day were Netflix (NFLX), Dow-Dupont (DOW), Apple (AAPL), and Home Depot (HD). Though these were the leading stocks for the day, the price action they displayed by the day's close gave pause to those who might think the day's action was so very bullish after all.

With the exception of HD, these stocks traded on the lowest volume in a month. Even HD volume is suspect considering that the company reports earnings tomorrow and the rise in volume is likely attributable to that event alone. All four stocks showed a retreat from the days high in a narrow trading range after the open. AAPL shares actually closed lower than they opened.

This price dynamic may simply be a function of investors calming down after the past two week period of increased volatility. However, there may also be a more pessimistic explanation. Investors who show so little conviction for buying shares after they have been pushed measurably lower, may be tipping their hand that they are too nervous to create a sustained rally in stocks over the weeks ahead.

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Gold Stocks that Outperform Gold

If stock and bond investors are showing their tendency towards nervousness, then the price of gold may be worth keeping an eye on. The gold-price index tracking ETF (GLD) has performed well since the last week in May, so it is natural to expect that gold mining company stocks would also show strong performance. In fact some have performed better than the price of gold, while others have not (see chart below)

The Bottom Line

Monday's market performance started with an optimism that diminished throughout the trading day. Investors appear to be conflicted in their desires to buy up the dips, divest from stocks, or simply wait on the sidelines. Gold prices fell though still remain in an uptrend, while bond prices seem to indicate that despite the recent run-up in prices, investors are still interested in hedging against the stock market.

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