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After the Job Report, Look to Treasury Yields

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We could be in for higher rates, a stronger dollar, and lower risk asset prices in the short term.

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Summary of Yesterday's Notable Technical Developments

Stocks put in a bearish engulfing candle Thursday; typically this is a signal of a reversal in trend. It must be noted that yesterday's action occurred on light volume and today's employment report could negate this technical signal.

Bonds were down once again Thursday as they gapped lower and remained weak all day -- the yield has moved from a low of 3.20% on Monday to 3.38%.

Commodities
were hit pretty hard and moved further away from what we at ThirdWave feel will be their peaks for a while.

The US Dollar Index put in another gain on Thursday, but the technical picture didn't change. A move above 75.20, especially on a weekly close, would confirm our bullish stance.

Critical Market Components:


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Market Internals:



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NYSE Net New 52-Week Highs Vs. Lows:


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Chart of the Day: The Yield on the 10-Year US Treasury Note


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  • 10-year Treasury yields are rising again after bouncing off the 3.20% level earlier this week.

  • This could be the beginning of wave iii of 5 higher which, based on Fibonacci projections, suggests an upside yield target range of 3.857% to 3.968%.

  • If bond prices fall and yields rise, that could provide a boost to the US dollar versus other currencies and may cause the weak dollar/higher stocks and commodities trade to be unwound.

  • The weak dollar trade is a crowded one, so the rush to the exits could be violent if it ends.

  • Of course, all of this is just one scenario and we must be ready for anything. Today's jobs report could certainly have an effect on interest rates, so carefully observe the reaction to the news.


Strategy: Watch Treasury yields after the jobs report is announced this morning for clues as to where the US dollar/stocks/commodities may be headed. Our call at ThirdWave is for higher rates, a stronger dollar, and lower risk asset prices in the short term. We'll know quickly and admit it if we're wrong.

No positions in stocks mentioned.

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