Wall Street

U.S. Indices Sell Off As Bond Yields Rise

Posted Thursday, October 4, 2018 by
Shain Vernier • 2 min read

The correction is on for the U.S. indices, led by big losses in the DJIA and S&P 500. For the first hour of trade, things are looking ominous. A 200 point sell-off in the DJIA and twenty point loss in the S&P 500 have put an exclamation point on the early action. Growing bond yields are being credited for the sudden reversal in market sentiment.

It has been a theme for the last few months, but bond yields are on the rise. U.S. Treasuries auctions from earlier this week have pretty much told the tale. Here is a quick look at the week’s debt market:

Security                              Previous      Actual

3-Month T-Bill                        2.180%         2.175%

6-Month T-Bill                        2.320%        2.335%

4-Week T-Bill                          2.105%       2.080%

Short-term yields have beentrending higher for some time. However, the big news is the performance of the 10-Year Treasury Note. Earlier today, it hit 3.21%, the highest level since 2011.

It is no surprise that U.S. Treasuries are becoming attractive given the FED’s stated plan of tightening for the next 18-24 months. At the moment, it appears we are witnessing institutional capital taking a fancy to debt.

E-Mini S&P 500 Technicals

Heavy selling has driven December E-mini S&P 500 futures toward several daily downside support levels.

December E-mini S&P 500 (ES), Daily Chart
December E-mini S&P 500 (ES), Daily Chart

Here are the key areas to watch for the remainder of the session:

  • Support(1): Daily SMA, 2903.50
  • Support(2): 62% of September’s Range, 2899.00

Bottom Line: Today’s pullback doesn’t come as a complete shock. After all, what goes up must come down — but the scope is a bit alarming. Rising bond yields and a selloff in the tech sector have brought the U.S. indices back down to earth very quickly.

For the rest of the session, a counter-trend scalp from the 62% retracement of September’s range is solid trade location to the bull. Buys from 2899.75 with an initial stop at 2897.75 produce a fast 8 ticks using a 1:1 risk vs reward ratio.

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About the author

Shain Vernier is our US Analyst
Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.
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