As the S&P 500 declined 4.1% in dramatic fashion on Monday, the futures on the 10-year notes (/ZN) gained 1.16 points or 1%. This “flight to safety” trade is common when equities decline.
The notes are in the declining phase of their current intermediate market cycle. This cycle is depicted in the weekly chart below by the blue semicircles at the bottom of the chart.
/ZN Stock Chart (Weekly Bars)
The completion of a market cycle normally coincides with an important low. However, that may be slightly delayed, as seen on the daily chart below. As shown, the notes still have several trading sessions left before they reach the end of the corresponding market cycle.
As the move lower in equities still appears to be in play, we may see another flight to safety, or at least the prevention of a significant move lower in the notes as they complete their current market cycle.
To bottom line is this. As the market cycle on the daily chart draws to a completion, the likelihood of a bounce in treasuries, that may last for several weeks, increases.
/ZN Stock Chart (Daily Bars)
For more detail on our analysis, including the 30-year bonds, check out our latest video below, which is a clip from our weekly series “FutureSpeak”.
Visit our site for more on our approach to using market cycles to analyze stocks and futures.