This week, there are two Market Forecast sections. The chart below is a two month daily comparision chart of TNX (10-year bond yield; black line and right scale) and SPX (blue line and left scale). Over the past two months, there has generally been an inverse relationship between TNX and SPX, although both have risen.

Recent comments suggest that if TNX rises above 5%, then an SPX correction will take place. Currently, the TNX daily RSI is above 70, which is an overbought level. Also, the TNX MACD is bullish, although a pullback or consolidation can take place, while MACD remains bullish. Consequently, TNX may remain below 5% short-term, which may indicate an SPX rise.

TNX rose from roughly 4.75% to 4.85% shortly after the FOMC tightened Mar 28th. Currently, it's not much higher than the Fed Funds Rate at 4.75%. Consequently, TNX may not fall much below 4.85%. TNX seems to be pricing-in the expected Fed Funds Rate. The current 4.96% TNX yield may indicate about a 100% probability that the FOMC will tighten again and further tightening has not been priced-in.

When interest rates rise, the value of earnings become worth less, which is negative for stocks. Moreover, earnings growth is expected to slow, which is also negative for stocks. Consequently, a steep SPX correction may take place if economic reports show signs of economic strain and earnings guidance is lowered in Apr.

Charts available at PeakTrader.com Forum Index Market Forecast section.