The $T10YFF and $T5YFF, or 10 and 5 year treasury constant maturity minus federal funds rate is a good indicator of how likely it is that capitally intensive growthy stocks will rise in price. This is because investors cycle in/out of bonds/equities as the rates change.
You can see in the chart below that the T10YFF has an inverse relationship with the effective federal funds rate. This is obviously true because it literally says "minus federal funds rate" in the name.
Since growthy companies, particularly pharmaceutical companies, have a large capital needs over long time periods, this results in an inverse correlation between the T10YFF and growth stocks. I'll use ARK's Genomic Revolution ETF $ARKG as an example of growthy pharma. See examples below:
This is also a nice way of seeing when something is getting into equities that is unrelated to rates.
Anyway, I think this can be used to 'arbitrage' growth stocks. To do this, I take the simple moving average of the variance of the T10YFF's moving average convergence divergence (MACD) line over a 3 day period. Then I average this with the -1* MACD line itself to get what might be a buy/sell signal line.
From this you can see when the white line is above the red threshold line I made using the variance I talked about earlier, you should be considering buying, and when it is at or below the green threshold line, it may be time to start thinking about selling.
Here is the script associated with this indicator.
You can see in the chart below that the T10YFF has an inverse relationship with the effective federal funds rate. This is obviously true because it literally says "minus federal funds rate" in the name.
Since growthy companies, particularly pharmaceutical companies, have a large capital needs over long time periods, this results in an inverse correlation between the T10YFF and growth stocks. I'll use ARK's Genomic Revolution ETF $ARKG as an example of growthy pharma. See examples below:
This is also a nice way of seeing when something is getting into equities that is unrelated to rates.
Anyway, I think this can be used to 'arbitrage' growth stocks. To do this, I take the simple moving average of the variance of the T10YFF's moving average convergence divergence (MACD) line over a 3 day period. Then I average this with the -1* MACD line itself to get what might be a buy/sell signal line.
From this you can see when the white line is above the red threshold line I made using the variance I talked about earlier, you should be considering buying, and when it is at or below the green threshold line, it may be time to start thinking about selling.
Here is the script associated with this indicator.