Yield Curve normalization and Stocks reaction $spy $tltAs long as the curve remains inverted stocks have a tail wind. It's the normalization that will crush stocks
DGS30 trade ideas
$spy $tlt What you should fear is the yld curve revertingBack to normal. That is the signal that the FED has eff'ed things up and a major earnings recession is coming. Think 200X15 on s&p500
$spy $tlt The yield curve problemThe inversion of the yield curve becomes problematic when it starts reversing. This is starting to happen at a higher and higher levels where true inversion isn't necessary for economic destruction. What level will it stop at this time? each of the past 4 have been at higher levels. My guess is that 1.75% on 2 yr rates and 4.5 on mortgages crushes stocks again and inversion stops around .2 WE aren't far off
Bonds and the vitality of the market and overarching economy.In this chart, I find it important to (as an economist) monitor treasuries and bonds, luckily Tradingview has us covered there. The next few charts will be some economic correlations so we can better understand the economy before I get into the meat and potatoes of this system . As you can see, bonds and treasuries are dropping which indicates selling. Big name bond investors are spooked, and looking at it from this perspective I can see why. Take a second to think back to the start of 2020 and the 'thing that wont be named'. Think of ALL the BS that has happened in this timeframe, If I had big money in bonds right now, I would be spooked myself.
I will be getting into detail in a later economic chart about just some of the crap that must be on big investors minds.
$spy $tlt I think we are right here 2011Similar time of year, similar case of inflation creeping back in and a housing bubble to boot. Fed needs to begin draining liquidity from $mbs Likely to cause a hiccup in the market
2021-05-06 UST 30YR YIELD VS. XAU/USDInteresting to see an 85% increase in 30 yr yield since September only caused a 12% drop in gold vs. USD
$spy $tlt Yld spread update. DangerThe yield curve is steepening and moving above the danger level. As you can see back in late 1999's we had a hiccup in the spread which caused a sell off, but it corrected itself and market continued on. We had a similar hiccup this past year which caused a correction in the market and then it continued. This time it has continued despite the spread continuing to go up. We have entered a very dangerous point. If the spread continues to widen then expect more volatility to come as bonds start becoming more attractive than stocks and other margin and earnings related issues that come with it.
30's - 10's spread predictor of future $spy directionWhen this spread gets close to or below 0, we should start becoming more risk
adverse in our trading. While conditions may persist for a period of time, the change
in direct of spread usually leads to a change in direction of $spy. Something to watch
30 yr - 10 yr spread vs spyDo you notice any similarities in this chart? Whenever this spread approaches zero, the market is at risk of a market shock/correction. Especially when it gets this weak of a reading in RSI.
Short Term Treasury Yields Rise = Pain to comeI feel that the bond market is the greatest indicator of the stock market's future. Who else is more concerned about their money than ultra-conservative bondholders? We see in the graph as the short-term Treasury yield rises (in red) from lack of demand and selling off. The sell-off in the short-term treasuries indicates that investors are worried about the future and are purchasing more long-term Treasury bonds (in green). The increased demand and buying of these long-term bonds raises their prices and drives down their yield to bring together an inverted yield curve, where short-term yields are greater than long-term yields. My recommendation and what I am personally doing is selling off all my equity holdings before the end of the year.
I am/we are long TMF & RH.
