This is one of two post about the market. The market is approaching a pivotal point. Within the next two weeks we likely will know if this is the bear market or if the past few months have been another 2015 head fake. Ill discuss in greater detail why I think that in the next post. Before I do that, I want to share with you why I am leaning towards the market resuming it's upward move.
monthly
Two of the three indicators have turned negative. one of the indicators, the MACD, has not. It will likely turn negative in the next year. Also, please look at my fancy black vertical lines. Those are when yield curve inverted. As you all probably know, the yield curve has a 100% accuracy rate!.....however, it is not the most timely of signals. Notice there is no black line yet for the current bull market. That should give us all pause........... Does anyone remember the large double bottom of 2015? It was a massive correction and buying opportunity. It was not a bear market, nor a recession.
So you are wondering, is the market throwing us another head fake? Is this just like 2015? Well maybe or maybe not. lets dive deeper into some yield charts and then some lower time frames.
Below are three images from sources I look at weekly.....not the most academic or overly technical, but informative.
1. Below is the iM's Business Cycle Index, created by George Vrba. The index generates between 11-20 week recession warnings. The index has taken a hit over the past few months, but it has not generated a recession warning signal.
https://static.seekingalpha.com/uploads/2018/4/12/31061145-15235371421228435_origin.png
2. Next I want to so you a useful chart from a tweet I saw today. Again, not one of the most venerable sources. What you should take away from the very simple, yet elegant analysis is that the yield curve has an average lead time of 14 months. That is 14 whole months of possible gains! In 2000 yield curve inverted following the blow out 1999 year (+21.04%). Thats like waking putting 5 dollars in your pocket on new years day and then waking up a on new years eve with 6! Thats a lot of money! The yield curve inverted one month after dotcom bull market high. Prior to the great recession, the yield curve inverted about 22 months from the high in 2007. During that time the market made just shy of 20%. Another magic dollar in your pocket and mine too.
https://twitter.com/charliebilello/status/986728012212207616
3.Finally, please direct your eyes to the following Bloomberg link. The yield curve is flattening. Thats a fact. It has not flattened yet. That is also a fact. A strong assumption is that the yield curve could flatten within the next 6 months. That is based on the current yield curve trend projection. That is another 6 months or more to make money.
https://www.bloomberg.com/news/articles/2018-04-18/from-citigroup-to-the-fed-curve-inversion-angst-is-intensifying
So what am I saying? What I am saying is that this bull market could still shoot for an all time high this year AND the market is going thru a topping process. All those sitting on the sidelines should not fight a market headed higher. If you are a longterm investor and you already pulled your money out, you will probably be vindicated. If you a trader, this should give you pause. The natural direction of the S&P 500 is up.
monthly
Two of the three indicators have turned negative. one of the indicators, the MACD, has not. It will likely turn negative in the next year. Also, please look at my fancy black vertical lines. Those are when yield curve inverted. As you all probably know, the yield curve has a 100% accuracy rate!.....however, it is not the most timely of signals. Notice there is no black line yet for the current bull market. That should give us all pause........... Does anyone remember the large double bottom of 2015? It was a massive correction and buying opportunity. It was not a bear market, nor a recession.
So you are wondering, is the market throwing us another head fake? Is this just like 2015? Well maybe or maybe not. lets dive deeper into some yield charts and then some lower time frames.
Below are three images from sources I look at weekly.....not the most academic or overly technical, but informative.
1. Below is the iM's Business Cycle Index, created by George Vrba. The index generates between 11-20 week recession warnings. The index has taken a hit over the past few months, but it has not generated a recession warning signal.
https://static.seekingalpha.com/uploads/2018/4/12/31061145-15235371421228435_origin.png
2. Next I want to so you a useful chart from a tweet I saw today. Again, not one of the most venerable sources. What you should take away from the very simple, yet elegant analysis is that the yield curve has an average lead time of 14 months. That is 14 whole months of possible gains! In 2000 yield curve inverted following the blow out 1999 year (+21.04%). Thats like waking putting 5 dollars in your pocket on new years day and then waking up a on new years eve with 6! Thats a lot of money! The yield curve inverted one month after dotcom bull market high. Prior to the great recession, the yield curve inverted about 22 months from the high in 2007. During that time the market made just shy of 20%. Another magic dollar in your pocket and mine too.
https://twitter.com/charliebilello/status/986728012212207616
3.Finally, please direct your eyes to the following Bloomberg link. The yield curve is flattening. Thats a fact. It has not flattened yet. That is also a fact. A strong assumption is that the yield curve could flatten within the next 6 months. That is based on the current yield curve trend projection. That is another 6 months or more to make money.
https://www.bloomberg.com/news/articles/2018-04-18/from-citigroup-to-the-fed-curve-inversion-angst-is-intensifying
So what am I saying? What I am saying is that this bull market could still shoot for an all time high this year AND the market is going thru a topping process. All those sitting on the sidelines should not fight a market headed higher. If you are a longterm investor and you already pulled your money out, you will probably be vindicated. If you a trader, this should give you pause. The natural direction of the S&P 500 is up.