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Yield Curve and Small Caps

weekly Chart In Focus

Back on August 22, I wrote here about how the spread between the 10-year T-Note yield and the 3-month T-Bill yield gives us a leading indication that is relevant for small cap relative performance.  This time, I look at the "yield curve" in a different way, via the spread between 10-year and 2-year yields.

The 10-year to 3-month spread is a leading relationship for small cap relative performance, but the 10-2 spread is a coincident one.  Sometimes analysts show that as a 2-10 spread, but it... Read More

Trump Thinks He Wants Low Rates Like Europe, But Be Careful What You Ask For

weekly Chart In Focus

President Trump has been articulating his wish on Twitter and elsewhere that the U.S. have interest rates as low as other countries.  That’s an understandable wish, as no one likes to pay more than the other guy is paying for something.

Trump interest rate tweets

In economics there are often unintended side effects, and that is what this week’s chart is intended to explore.  It shows the spread between the 10-year U.S. Treasury Note and the 10-year German Bund.  That spread is pretty high right now, with U.S.... Read More

Bond Yields Stretched Far From Oil’s Message

weekly Chart In Focus

Back on July 10, I wrote in a Chart In Focus article that there was an “Upturn Ahead for T-Bond Yields”.  And we got a small upturn then.  But that small upturn in yields was more than eclipsed by a huge drop in bond yields to historic lows, as U.S. yields were affected by the rest of the world’s bond markets going mad. 

Several countries’ sovereign debt instruments are trading at negative yields, meaning you pay for the privilege of someone else holding your money for you for years.  And... Read More

Crude Oil’s 10-Year Message

weekly Chart In Focus

We currently have trade wars, presidential tweets, inversions in the yield curve, slowing earnings growth, decreasing corporate share buy-backs, and all manner of other problems affecting the stock market.  And yet the long term message from crude oil prices says that the stock market ought to continue trending upward into 2021.

It is a fun attribute of crude oil prices that their movements give us a 10-year leading indication of what lies ahead for the stock market.  I discovered this... Read More

Inverted Yield Curve, and Small Caps

weekly Chart In Focus

The whole media world is abuzz lately with talk of the inversion in the yield curve, and what it means for a potential recession.  The track record is mixed there, and there is much debate among academics about whether it is “different this time”.  But there is one very reliable effect associated with yield curve fluctuations which we can talk about.

In the chart above, I’m showing the relative strength ratio for the Russell 2000 Index versus the Russell 1000.  Also in the chart is the... Read More

Equity Put/Call Volume Ratio’s 21-Day MA

weekly Chart In Focus

The stock market selloff since the last new all-time high on July 26 has brought the bears out, and they have been trading a lot of put options.  Some trade those as an outright bearish bet, and some as a hedge on portfolio risk.  Whatever the motivation for those trades, it is a sign of a bottoming condition for prices when we see persistently higher trading of put options versus call options.

This week’s chart looks at a 21-day moving average of the daily CBOE Equity Put/Call Volume... Read More

When the Flight To Quality Goes Too Far

weekly Chart In Focus

The stock and T-Bond prices often move in opposite directions, and in August 2019 that movement has reached a pretty extreme degree.  The basis for that statement comes from the indicator in this week’s chart, which comes about through some fairly simple math.

I calculate a 10 trading day rate-of-change (ROC) for both the SP500 Index and for near-month T-Bond futures prices.  Then I find the difference between those two, expressed in percentage points.  It is a very short lookback period,... Read More