Spaaaaaaaaaaace!
Let's make a quick party, also bring a cake to celebrate! Make it quick, because it's late and I am tired and I should be sleeping by now.
We have reached the top of the world. Well, equities have. It is time for them to lose value big time. Their successor is here, bonds. I have talked about it extensively in my last idea.
This is an urgent idea I wanted to post. It seems that day-by-day we might be witnessing the peak in equity price.
And this idea is dedicated to the person who gave me the crazy idea to analyze something like that.
The idea is simple. We all know the immense yield inversion, it is definitely ugly... What if we found a way to analyze SPX based on the yield inversion itself? That is the idea of @CryptoTaoist and I am very thankful for it. All credit and all the likes this idea gets, are dedicated to this person!
Yield curve is a way to calculate money creation (normal times) and money destruction (inverted times).
Green is good for money, red is bad. No wonder dollars are green but flammable!
We also know that yield inversion is strictly bound to recessions. I will naively try to add these two together, equities and inversions to get an idea of when the recession is actually beginning.
Me and others have posted about how the US isn't in a recession yet. This can be seen if we multiply SPX by yields. In a sense, this year we had no recession for the US economy.
Please bring a real cake, not this lie...
The next part is analyzing whether SPX is performing good or bad considering the current rate of money creation / destruction. In a sense, dividing SPX by the yield curve. If you calculate the yield curve as US10Y-US02Y you will have trouble analyzing it compared with SPX.
Captivity of Negativity. Zero values for the denominator make a mess of the chart.
You could instead opt for a bodge, to fix the denominator by adding 1.
While this works, it is not harmonic enough for my liking.
I will create a new yield curve, but instead of standard yields I will calculate it using modified-yields.
More about the modified-yields in this idea below.
The new yield curve (in blue) is following the standard yield curve (in orange). So it can be considered a satisfactory replacement.
Do note that on the numerator we have modified(US10Y). On the denominator we have modified(US02Y+1). I add this +1 so as to further normalize the chart. In normal times US10Y and US02Y have a difference of ~1%.
To conclude, we divide SPX with the modified yield curve and we see the following:
A surprisingly smooth chart shows us what we expected, that the US isn't in a recession yet. It is also incredibly straight, from 2010-2022 and today. This means that yield curve and SPX correlate very well, if we modify them appropriately.
In a sense, dividing SPX by the yield curve calculates the following:
How much SPX increases as money gets destroyed?
If SPX can swim against the tide (money destruction) this means that it is very strong. A strong economy can hang on even when money is destroyed. US hanging on even with that immense of money destruction, means that it was (and perhaps still is) a very strong economy, which can withstand a heavy beating.
Note: DGS2 is a good replacement for US02Y if you want to analyze old historical data. Feel free to notify me of indicators that calculate even older yields of the 2 year bond.
But where is the ceiling in this chart?
While the 2.0 Retracement proves a significant resistance point, it is inconclusive of whether it is the terminal ceiling.
One answer may lie in the following chart:
(I knew the cake is a lie!!!)
We have divided by M2SL and multiplied by 10^12 to bring numbers to measurable scale. A normalized chart appears, and we also observe a curious ceiling appearing.
Price obsessively tries to penetrate this ceiling, just like DJI/M2SL did in 2018-2020
Are we witnessing the very last weeks of the equity bubble?
Tread lightly, for this is hallowed ground.
-Father Grigori
Captivity of Negativity is a reference to Bagwell of the Prison Break TV Series.
Let's make a quick party, also bring a cake to celebrate! Make it quick, because it's late and I am tired and I should be sleeping by now.
We have reached the top of the world. Well, equities have. It is time for them to lose value big time. Their successor is here, bonds. I have talked about it extensively in my last idea.
This is an urgent idea I wanted to post. It seems that day-by-day we might be witnessing the peak in equity price.
And this idea is dedicated to the person who gave me the crazy idea to analyze something like that.
The idea is simple. We all know the immense yield inversion, it is definitely ugly... What if we found a way to analyze SPX based on the yield inversion itself? That is the idea of @CryptoTaoist and I am very thankful for it. All credit and all the likes this idea gets, are dedicated to this person!
Yield curve is a way to calculate money creation (normal times) and money destruction (inverted times).
We also know that yield inversion is strictly bound to recessions. I will naively try to add these two together, equities and inversions to get an idea of when the recession is actually beginning.
Me and others have posted about how the US isn't in a recession yet. This can be seen if we multiply SPX by yields. In a sense, this year we had no recession for the US economy.
The next part is analyzing whether SPX is performing good or bad considering the current rate of money creation / destruction. In a sense, dividing SPX by the yield curve. If you calculate the yield curve as US10Y-US02Y you will have trouble analyzing it compared with SPX.
You could instead opt for a bodge, to fix the denominator by adding 1.
I will create a new yield curve, but instead of standard yields I will calculate it using modified-yields.
More about the modified-yields in this idea below.
The new yield curve (in blue) is following the standard yield curve (in orange). So it can be considered a satisfactory replacement.
To conclude, we divide SPX with the modified yield curve and we see the following:
In a sense, dividing SPX by the yield curve calculates the following:
How much SPX increases as money gets destroyed?
If SPX can swim against the tide (money destruction) this means that it is very strong. A strong economy can hang on even when money is destroyed. US hanging on even with that immense of money destruction, means that it was (and perhaps still is) a very strong economy, which can withstand a heavy beating.
Note: DGS2 is a good replacement for US02Y if you want to analyze old historical data. Feel free to notify me of indicators that calculate even older yields of the 2 year bond.
But where is the ceiling in this chart?
One answer may lie in the following chart:
(I knew the cake is a lie!!!)
Price obsessively tries to penetrate this ceiling, just like DJI/M2SL did in 2018-2020
Are we witnessing the very last weeks of the equity bubble?
Tread lightly, for this is hallowed ground.
-Father Grigori
Captivity of Negativity is a reference to Bagwell of the Prison Break TV Series.
Comment:
I believe that indicators like the T10Y2Y chart are not broken. Charts like these are now pushed to their extremes. Simplistic calculations tend to break near the extremities of near-zero yields. The same applies to volatility, put-call ratio etc. We should redefine the way we calculate the foundations of the economy.
Comment:
I have redefined the SPX/(modified-curve)/M2SL equation and it turns out as follows:
Price perfectly reacts to the trendline drawn from the 2007 peak. Now we are witnessing a probable fakeout.
Comment:
I don't analyze all of these exotic charts in an attempt to "wake anyone up". I have the passion of sharing what I discover the moment I find it. No matter how small or big, how important or irrelevant it is, I must write it down.
Perhaps this platform might not be a place to analyze and re-invent tools like the yield curve. Sadly, there is no other place to my knowledge where one can analyze and discuss the truth behind what we see in the financial world. Furthermore, I cannot be certain that all of these are true, if I don't discuss them with people who are interested. Just like traders get trapped in their actions, so do I.
Perhaps this platform might not be a place to analyze and re-invent tools like the yield curve. Sadly, there is no other place to my knowledge where one can analyze and discuss the truth behind what we see in the financial world. Furthermore, I cannot be certain that all of these are true, if I don't discuss them with people who are interested. Just like traders get trapped in their actions, so do I.
Comment:
If the modified-curve is of any meaning (and it probably is), it can provide an alternate way to pinpoint the probable bottom of the yield curve.
The standard curve does show some early indications of bottoming.
I forgot to add in this chart, in 2M timeframe RSI is near an all-time low. This means that RSI is oversold (in support)
The modified yield curve shows something slightly different.
It will take quite some time for long timeframes to show significant bottoming indications. And there is probably much room further down...
The modified-curve shows that the ratio is at an all-time low, and that's just the start...
The standard curve does show some early indications of bottoming.
The modified yield curve shows something slightly different.
It will take quite some time for long timeframes to show significant bottoming indications. And there is probably much room further down...
The modified-curve shows that the ratio is at an all-time low, and that's just the start...
Comment:
Comment:
We may be witnessing the very last weeks of this fun equity bubble. Ahead of us there may be an abrupt liquidity crisis, or the beginning of a long recession.
The past of this retracement is deadly. We must think twice before trusting it.
Comment:
I am not affiliated with endtimeheadlines. It is your duty to research and validate such news reports. Don't trust me, be the judge for yourself.
Comment:
From today's pre-market, it seems that the resistance held on.
The horizontal line is not drawn with any bias, it's coordinates are taken from the magnet retracement drawn from the 1992 bottom.
The real SPX is now, not in January 2022.
The real SPX is now, not in January 2022.
Comment:
I've been hearing people on YouTube, in a channel called Real Vision Finance, where they talked about how the "bottoming" behavior that occurred this summer had the features of a "topping" structure. We had significant gap-ups instead of significant gap-downs. Someone smarter and more experienced than me talked about it. Unfortunately, I don't remember on which video they talked about it.
It's not me that first talked about how equities are not in a recession yet. @SPY_Master invented the incredible SPX/(1/US10Y) chart which calculates just that. SPX Transformations with either bonds or the yield curve, result in similar conclusions. There is much room for us to drop.
In QE Booms, like 2018-2020, equities lost real value while their price got higher. In QT Booms like 2022, equities gained real value while their price got lower.
It is a lose-lose scenario. In 2018-2020 an investment in SPX would give out more money, but the output would be of less value. In a sense, no real wealth was made. In 2022 an investment in SPX would lose money, but it would be more of value.
This upside-down scenario is concerning... Are we entering a period when a dwindling SPX is "more profitable" for certain massive investors? Those who own fundamentals of the economy (banks, commodity producers), not those who seek to invest in their dollar-denominated price.
In QE Booms, like 2018-2020, equities lost real value while their price got higher. In QT Booms like 2022, equities gained real value while their price got lower.
It is a lose-lose scenario. In 2018-2020 an investment in SPX would give out more money, but the output would be of less value. In a sense, no real wealth was made. In 2022 an investment in SPX would lose money, but it would be more of value.
This upside-down scenario is concerning... Are we entering a period when a dwindling SPX is "more profitable" for certain massive investors? Those who own fundamentals of the economy (banks, commodity producers), not those who seek to invest in their dollar-denominated price.
Comment:
Comment:
One more update on the yield curve:
The modified-yields ratio I plotted before, is more faithful to the original yield curve.
In this refined chart, I have slightly modified the relationship between US10Y and US02Y. Before I considered a standard base difference between them as 1% . I have changed it to .50% and I moved the chart slightly upwards. The modifications I did were such that the baseline of the standard yield curve is identical to the baseline of the modified one.
From the chart above, it is more visible than ever, the sheer scale of money destruction. The blue chart has NEVER went in such low levels.
PS. Note that the T10Y2Y curve is in regular scale, while modified-curve is in log scale. While the difference may seem irrelevant, it is highly important when we perform calculations. Charts behave best when we multiply and divide log-based charts. Avoid mixing linear charts with log ones.