The Bond Market Just Broke

The bond market broke today. Interest rates are exploding higher.

The TLT now sits near the lowest point it has ever traded. One thing can burn this marketplace, and the bond market is it.

The S&P 500 closed right at 7511. That number has been the center point of every trade since May 4th.

We tested 7350 this week and bounced. Traders immediately called it a bottom. Too much remains unresolved for me to agree.

The Nasdaq ran from 27,200 to a high of 28,600. That is a 5% move off the low. It still could not reclaim 29,000.

Some of the most ferocious moves you will ever see happen inside a down move. This one reeks of a bear market rally.

Here is the part almost nobody caught. The advance-decline line stayed negative during yesterday’s 130-point rally in the S&P 500.

No fresh money is entering this tape. Capital is simply rotating.

Traders dumped Apple (AAPL) and piled into Microsoft (MSFT), which added a half trillion dollars of market cap in a single session. Then they rotated out of semiconductors and into Amazon (AMZN).

Semiconductors bounced hard. They are already fading. South Korean markets ran 18% off their lows, and that bounce is fading too.

Now look at volatility. The VIX fell back into the 15 handle, so everyone assumes the danger passed.

The VIX is the least important volatility indicator you can watch right now. It will be the last one to know when this breaks.

Nasdaq volatility printed 29 this morning. Semiconductor implied volatility sits above 50. Volatility futures came within 20 cents of backwardation.

That divergence has to close. My read says S&P volatility soars to meet Nasdaq volatility.

In today’s weekend update, I break down the specifics:

• Two consecutive weeks closed without touching the upper or lower edge of the expected move. That is incredibly rare. Next week, prices are only a $100 expected move, and I am taking the over.

• Monday is pricing a 45-point move after a 130-point session yesterday. Sell premium here at your own risk. I am buying it early next week.

• The 10-year rate broke out to 4.7% on surging bond volume. A bond rally next week clears the risk. More selling puts the nail in the coffin.

• Semiconductor implied volatility sits above 50 while the VIX rests at 15. Micron (MU) dropped another 4% today. Intel (INTC) looks worse.

• The dollar is getting crushed, which normally supports equities. Bank of Japan intervention in the yen is driving that move, so treat it carefully.

Forget the Fed. Forget earnings. The bond market will handle what the Fed refuses to touch.

Watch the bonds Monday before you look at anything else. They will dictate the next move in the S&P 500.