Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19
US Stock Market Hasn’t Cleared The Storm Yet - 8th Sep 19
Precious Metals Were Ripe for a Pullback - 8th Sep 19
Market Chart Patterns to Spot High-Confidence Trading Opportunities in a "Pinch"! - 8th Sep 19
Five Feet High And Rising - Stock Market Bulls False Sense of Security - 8th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

Yield Curve Harbinger of Stock Market Doom

Stock-Markets / Inverted Yield Curve Dec 05, 2018 - 05:32 PM GMT

By: Gary_Tanashian

Stock-Markets

“The Harbinger of Doom”? Of course we (well, the media) are talking about the yield curve AKA Amigo #3 of our 3 happy-go-lucky riders of the macro. I have annoyed you repeatedly with this imagery in order to show that three important macro factors needed to finish riding before situation turns decidedly negative.

Amigo 1: SPX (or stocks in general)/Gold Ratio

Amigo 2: 30 Year Treasury Yield

Amigo 3: Yield Curve


In honor of Amigo 3’s arrival to prime time let’s have a good old fashioned Amigos update (going in reverse order) and see if we can annoy a few more people along the way. :-)

Yield Curve

Clicking the headline yields a Bloomberg article all about various yield curves and all the doomed news  you can use, including a hyperactive interview with an expert bringing us all up to speed on the situation.

With respect to the headline, I would say that tumbling stocks actually show stocks are in a volatile whipsaw that we have anticipated in the making of a top because the yield curve has been flattening since 2013 (when NFTRH noted a Semiconductor Equipment sector cycle up signal) and our early bird Semi signal registered again, this time to the negative side in 2018.

But the media are giving you sound bites and easy answers to digest so let’s not muddy this simplistic picture with the grinding long-term work that is actually needed (← sarcasm). Let’s just give you another headline (again, click to get the article).

So the key reason is that some lesser watched aspects of the Treasury curve are starting to invert. Inversions tend to precede recessions, after all. But in the cases of the last two inversions (10yr-2yr) the stock market continued to a new high after the curve finished flattening in inversion territory. Today the curve has not inverted, although the media is really titillating itself (and you) with the word “inversion”.

But as we’ve been noting all along, the curve does not need to invert to bring on the bad stuff; that tends to happen when it begins steepening, whether or not an inversion is in place.

So here’s the 10-2, its boom/bust indications and the S&P 500 shaded in the background. We’ve been noting all year that risk is high by this indicator, but a boom runs with a flattening (dropping) curve and it has not yet turned up. There is certainly no guarantee that the market has not topped ahead of the indicator. Indeed, I believe it has. But the last 2 stock market downturns began after the steepening had begun.

30 Year Treasury Yield

Perhaps noise about the yield curve is misplaced and should be more focused on the 30 year yield, which has just failed at the limiter after a macro whipsaw to put everybody (and his uncle) in the “BOND BEAR!” camp. Surely you remember that hysteria.

Well check it out. Forever and a day did we track TYX to its limiter (100 month EMA). As it got close, moving upward from a bullish pattern we noted that this time could be different, to a degree. Specifically, the red arrows indicate previous attempts at killing the bond bull that were reversed either at the limiter or within the month of breakout. We loosened the parameter to Q4 instead of in-month (October). Boink… TYX has reversed back below the EMA 100 here in month #3 of Q4.

But what does this mean? Ask the experts in the linked articles above. Or just consider that a renewed breakout (the yield just hit the lateral support of the bull flag that marked the majority of 2018 yesterday) would likely come with renewed inflation expectations (the Fed is squarely in the eye of the world, after all) and a continued failure would come with increasing deflationary pressures.

Regardless, at this moment the yield curve is flattening under pains of the failure in long-term yields while the short end has not yet responded to a similar degree. When the yield curve does begin to steepen it will likely be driven by either inflationary or deflationary pressure.

SPX/Gold Ratio

Finally, the view of a market inflated first by the Bernanke Fed’s monetary policy and then by the Trump administration’s fiscal policy vs. a metal that just sits and marks time (and value) amid the chicanery. We have had SPX/Gold on watch for years because in my view it is simply a barometer to the market’s perceptions.

Exactly 10 years ago the perceptions were bleak indeed. In January of 2018 investor sentiment blew off and SPX/Gold smashed into the target area at the 38% Fib retrace. Recall the terror of Q4 2008. Recall the unsustainable euphoria of January 2018. Case closed.

For now we are only managing a projected 2019 pullback in SPX to the noted thick support area at 2100-2200. A commensurate level for SPX/Gold is noted above. No great shakes, right? No, if any coming downside is just a cyclical interruption instead of a major bear market.

As for the media hysteria about Amigo 1’s arrival on the scene? It’s best to tune out stuff like the “harbinger of doom” because it has been in play all along as the 3 key macro indicators rode for a long while toward their destinations. In a practical sense, take a look at weekly SPX and figure that the green dashed neckline to a still hypothetical * Head & Shoulders top will be an acute harbinger and trigger to the downside target.

Meanwhile, I continue to lean toward a multi-week grind, quite possibly with an upward bias to bring the pattern into symmetry before the doom hits.

* The hypothesis is supported by the major bearish RSI divergence in the lower panel, as momentum was much greater at the unsustainable January momentum/sentiment high than the higher high in September.

Subscribe to NFTRH Premium (monthly at USD $33.50 or a 14% discounted yearly at USD $345.00) for an in-depth weekly market report, interim market updates and NFTRH+ chart and trade setup ideas, all archived/posted at the site and delivered to your inbox.

You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar and get even more by joining our free eLetter. Or follow via Twitter ;@BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2018 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules