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Morning Notes — Counter-Trend Consolidation

Counter-Trend Consolidation

January 26, 2021

The move lower in 10-year Treasury yields has created an opportunity to add cyclical/value equity exposure.  Bond yields have significant support (price resistance) in the 0.98%-1.00% range (now ~1.03%) and the S&P 500 Value Index has significant support in the 1265-1255 range (now 1287).  The longer-term trend is very much intact and the counter-trend move over the past two weeks has largely run its course, which means most of the pullback in cyclical/value stocks has already taken place.  The counter-trend move is related to investor realization that large scale fiscal stimulus and vaccine-induced reopening are opposing themes…you get one or the other, but not both.  The realization has led to a convenient consolidation in the ‘reopening trade’ before moving higher in the months ahead.

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