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Bond yields are hovering near their July highs, and technical analyst Louise Yamada says the charts are suggesting a rally in rates is signaling the beginning of a new cycle.
"I think the two-year yield has actually been telling us that interest rates are on their way for a reversal from the 36-year declining interest rate cycle, to a new rising interest rate cycle," the managing director of Louise Yamada Technical Research Advisors said Tuesday on CNBC's "Futures Now."
According to Yamada, the two-year yield has been in an "uptrend since 2013," and in 2016 had actually broken a downtrend that was in place since 1981. More recently, the two-year has surged to a yield of 1.5 percent from around 1.3 percent, a move that Yamada believes is "anticipating the Fed's move in December."
Additionally the 10-year yield, according to Yamada, is also showing signs of an even bigger rally. The 10-year is currently above its 200-day moving average even while caught in a "six-month consolidation," but Yamada says if the 10-year can reach 2.5 percent, a move to 3 percent is certainly in the cards.
"Eventually, a breakout through 3 percent would, for us, define the reversal into a new rising interest rate cycle," she said.
Bonds have sold off in the last month or so as the market increasingly predicts a Federal Reserve interest rate hike in December. According to the CME FedWatch tool, the market believes there is a more than 80 percent chance that a rate increase will occur then.
One of Wall Street's most respected market watchers is raising the odds of a market melt-up.
According to Yardeni Research's Edward Yardeni, there's now a 55 percent chance the market will continue climbing. He raised it a notch from 50 percent, a number he settled on about two months ago.
The scenario would be a short-term boost for stocks, but it's also considered an ominous sign.
"A melt-up to a certain extent kind of creates its own demise. To the extent that this market continues to move higher, maybe starts to move higher at a faster pace, now that would indicate to me that a lot of investors are coming in a little late into this bull market, and doing it with ETFs," Yardeni said Tuesday on CNBC's "Futures Now." "As in 1987, they could create a sort of portfolio insurance effect where suddenly something happens."
He's referring to the crash on Oct. 19, 1987, otherwise known as Black Monday. It's the day the Dow plummeted by 23 percent after early computers on Wall Street spotted market weakness and tried to protect financial institutions by selling. But they weren't sophisticated enough to stop.
The Dow regained the losses within about 15 months.
Yardeni said it's unclear what could take the market off the rails this time.
"Maybe the Fed will turn a lot more conservative about the bubble aspects of the market — at least rhetorically try to talk it down. Then if it starts to unwind the ETF positions, you could get something like 1987 all over again," he said.
The S&P 500 has closed in all-time high territory 43 times this year. It's now up 19 percent since November's presidential election on hopes the Trump administration will get tax cuts and other business-friendly policies passed.
"I'm not holding my breath because I do like to breathe. I'm not convinced we're going to get much out of Washington. There's just too much bipartisan division as opposed to agreement," Yardeni said. "The global economy is really what's driving this stock market higher. And, earnings and revenue are moving higher because the global economy is doing so well."
For now, Yardeni is forecasting the S&P 500 should be within the 2,600 to 2,800 range by June. That would be about a 2 to 9 percent gain from current levels.
"''87 wasn't the end of the world. It was actually a great buying opportunity," Yardeni said.
Bank of America-Merrill Lynch is warning investors not to chase the rally.
Even though it's predicting the end is near, the firm isn't advocating a strategy which would push money to the sidelines.
"The market is trading quite elevated," said Marc Pouey, BofA Merrill Lynch's senior U.S. equity strategist, told CNBC's "Futures Now" recently. "But I think underneath the surface there are quite a few opportunities out there."
According to Pouey, there are two sectors which will likely be immune to a broader market downturn.
Pouey sees financials as a growth story.
"We've seen over 10 percent dividend growth in the space. They're also buying back their stock very, very aggressively," added Pouey. "They're rewarding shareholders from that perspective."
He made the case for health care based on the sector's history.
"If you look back over the last three years or so, consistently — every single quarter — health care delivers top-line and bottom-line beats outside maybe a couple of quarters. They are really delivering the goods there," said Pouey, noting that biotech is a shining area, too.
BofA's S&P 500 Index year-end price target is 2450; that's four percent below current levels. Pouey's comments came as the index recorded its longest winning streak since 2013.
In a special note to CNBC, he called the environment a "sentiment driven market with the S&P 500 trading at a 17.8x forward price/earnings (PE) ratio, at cycle highs, and 1.5 multiple points above pre-election levels."
As for market risks, the biggest issue is the lack of one.
"Near-term, there probably aren't many risks, which is maybe the biggest risk," Pouey said.
One spot he particularly finds negative is small-cap stocks. Pouey urged investors to fade the rally that area — pointing out its forward PE is within just one percent of cycle highs.
The technician who called oil's rally through the beginning of fall says that a bigger rally is in store for the commodity, and that investors should buy the recent dip.
In July, when oil was sitting around $46 a barrel, Scott Redler of T3Live.com predicted that crude could run above $51. The commodity actually surged 9 percent in September, breaking above Redler's predicted $51 level near the end of the month, and now the technician sees it going even higher.
More specifically, Redler believes that crude saw new "momentum" to the upside the moment a "descending trend line" was broken in mid-September. While the commodity has since fallen more than 5 percent from that $53 high at the end of September, Redler says that crude is heading back toward that downtrend line, and that based on momentum oil will bounce again.
"If you want to buy a dip, you can potentially buy this spot which is around $50," he said Tuesday on CNBC's "Futures Now." "And if this test holds, because sometimes you retest a descending channel, I do think the next move is going to be to the upside."
In other words, with oil still trading at $50 even on Wednesday, Redler is essentially saying now is the best time to buy crude.
As for how high oil could go, based on the momentum Redler sees in the charts he believes oil could return to $60, which it hasn't hit in more than two years.
"If we go back up to that $53 and get above it, I think in the first or second quarter of next year there's a good chance we're going to see it close to $60, which would be a nice tradeable move," he said. "So you can maybe buy the dip into this $50 area in crude, it gets above $53, and you play some momentum longer- term to $60."
If that rally in crude does play out, Redler says he sees XLE, the ETF that tracks energy stocks, surging as high as $74. That represents an 8 percent climb from XLE's Wednesday levels.
Crude held steady near $50 on Wednesday, though the commodity has dropped 6 percent year to date.
David Stockman is warning about the Trump administration's tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off.
Stockman, the Reagan administration's director of the Office of Management and Budget, isn't stepping away from his thesis that the 8½-year-old rally is in serious danger.
"There is a correction every seven to eight years, and they tend to be anywhere from 40 to 70 percent," Stockman said recently on CNBC's "Futures Now." "If you have to work for a living, get out of the casino because it's a dangerous place."
He's made similar calls, but they haven't materialized. In June, Stockman told CNBC the S&P 500 could easily fall to 1,600, which at the time represented a 34 percent drop. This week, the index was trading at record levels above 2,500.
Stockman puts a big portion of the blame on the Federal Reserve, and its ultra-loose monetary policy.
"This is a bubble created by the Fed," he said. "We're heading for higher yields. We are heading for a huge reset of pricing in the risk markets that's been based on ultra-cheap yields that the central banks of the world created that are now going to go away because they're telling you that they're done."
The calendar says Fall, but you'd be forgiven if you think it's Summer.
That's because this was the least volatile September on record, but that may not be such a great thing for the rally, according to one top technician.
"In September, you usually see volatility," said the senior market strategist Thursday on CNBC's "Futures Now." "But so far this year, 40 basis points is the average intraday move that we've seen so far on the S&P 500 this September, which is the least volatile ever."
In fact, according to Detrick, this September the S&P 500's average daily range has been around 0.4 percent.
So what does this mean for the market going into the fourth quarter? Detrick points to the fact that October has historically been the most volatile month of the year, with more 1 percent moves than any other month, so investors can expect a likely spike in volatility.
"Could volatility mean a little bit of a pullback?" he said. "Potentially, or maybe just some 1 percent daily changes which again, historically are normal, but clearly we haven't been seeing too many of them so far in 2017."
However, while the market had traded in a range this month, Detrick says that he does see stocks going higher in the fourth quarter. The key here is that while the S&P 500 hasn't seen too many moves beyond that 0.5 percent range, the fact that it has both hit a record high this month while being up 10 percent year to date is historically favorable for stocks.
"That's only happened 12 times since 1950, and sure enough the fourth quarter is up almost 6 percent on average 92 percent of the time, which is 11 out of those 12 times," said Detrick. "The fourth quarter is usually strong, what I'm getting at is it's even stronger when you have pretty good strength in September and throughout the year leading up to it."
This means that according to Detrick's data, the S&P 500 could actually rally another 6 percent before the end of the year.
As of Friday's close, the S&P and the Dow had their first positive September since 2013.
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