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As stocks sell off again, chart analyst sees buy signal in bond market

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Bonds could be flashing a bullish buy sign, Oppenheimer says

The fear trade took over to begin the week.

Investors rushed to safe haven bonds, pushing yields lower, and eschewed stocks as worries over the coronavirus outbreak spiked. The 10-year Treasury note is seeing such a bid that the yield, which moves inversely to price, neared a record low

But, even with this recent turn to safety, Ari Wald, head of technical analysis at Oppenheimer, said the bond market bid could be flashing a buy signal for riskier stocks.

"The safety trade has become so stretched to the upside that it's really the expensiveness of bonds and safety that I think should provide a floor for the stock market," Wald said Monday on CNBC's "Trading Nation."

"In particular, the difference between the S&P earnings yield and the 10-year U.S. Treasury yield, we're at levels similar to November 2016, December 2018, May 2019. And so for these reasons, I think it's made stocks relatively attractive," Wald added.

Quint Tatro, president of Joule Financial, sees opportunity in the stock market as investors shirk equities for Treasurys.

"Folks are just running out of equities and buying bonds at all costs and I don't think that's the smart thing to be doing here," Tatro said during the same segment. "We've been waiting patiently for a pullback. The market has been overbought for a long time."

The S&P 500's relative strength index, a momentum measure, tumbled to 33 on Tuesday — any reading below 30 signals oversold conditions. It was as high as 76 in mid-January — a reading above 70 is considered overbought.

"If you have been cautious and if you have a little cash, start buying some of your favorite names and we're doing just that," said Tatro. "Seeing pullbacks in great companies like Amazon which reported unbelievable earnings, giving most of that post-earnings run back or how about a Morgan Stanley — obviously a world-class bank, now trading much below where they were after their earnings report so this is an opportunity I think to take a deep breath … and to do a little bit of buying here."

Amazon and Morgan Stanley were both lower Tuesday. Amazon has fallen 7% in the past week, while Morgan Stanley is down 11%.

Disclosure: Joule Financial holds Amazon and Morgan Stanley.

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