ratesensitivebreakdownsfeb7

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Interest rate sensitive assets like Government bonds (TLT), Real Estate (IYR) and Utilities (XLU) have benefit greatly from falling rates and the macro theme of deflation, pushing all of them much higher over the past year(s).

Over the past year, each of these has gained 25% to 50% more than the S&P 500. The above chart reflects the strong rally in Utilities the past few years and how it remains inside of a well defined rising channel.

XLU of late has been creating bearish wicks at the top if this channel at (1). This past week, XLU broke short-term support at (2). The lower right chart is of TLT, which reflects that a bearish rising wedge looks to have formed and the support of this pattern was taken out this week, as TLT in one week wiped out a months worth of gains.

One month ago the Power of the Pattern shared “10 Reasons Why Interest Rates Are About to Reverse”  (See post here)  

A decline in these rate sensitive assets and a rise in yields this week does NOT prove a new trend is at hand. Trend changes take time and what took place this past week at resistance could become very important in the weeks ahead if weakness in this complex continues.

 

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