So this week, lots of talk about the yield curve, which brought on talk about recession and recession fears which we will talk about.
First up, we're going to talk about #bonds, because that's the big story this week. Here is a 30-year chart going back to 1980 on the ten-year Treasury. Unbelievable trend line. Remember those big rates tapping out there at about fifteen percent. And at the beginning of the year, I call this one of the most important charts. Why? Because if this trend line, were we going to break through? Wall Street was calling for it, we, on the other hand, thought differently.
I went back and looked at some of my old videos and we were calling for treasuries to go down.
Let me explain the move on the chart above all the way to the right where you see it drop...unprecedented. When you see that move just this month alone from 1.9, we broke 1.50 yesterday, closed at 1.52, that is a huge, huge move in the bond market.
So what everybody was talking about was the yield curve inversion.
Down at the bottom, we have a couple of things. One, we have our 10-year treasury, minus our 3-month treasury and you can see it's been negative since June. We brought this up a couple of weeks ago, the first time we've had a 30 day below. But the big move this week is that we're at .04, we did break it for just a little bit on Wednesday. Couple of other things on this chart before I explain that. The biggest thing this week is 1.98 on the 30-year Treasury, an all time low. Wow! That is a big move. Again, something that we do not see. Now, the importance of the yield curve is right here.
The idea is each time we've had a yield curve inversion, going below zero, 10 year, minus two year, we've had a recession.
I'm going back to 1980. There's your zero line. And then you can see what happens to the market. Whenever we have inverted we are followed by a recession, seen in the red. So here we are. We had our first inversion. Probably see it again in the near future.
So what does it mean to you as the individual investor? Well, the one thing it means is recession is not coming overnight. Historically, it's been 18 to 24 months and we don't know what's going to happen. Can the Fed have a soft landing? Possibly, but it is definitively a warning sign that we have to be careful of now.
The other thing that we saw last week was negative yields. Here's Japan. -.23, Germany, -.72. We've got 23 of 30 countries that rates are below our Fed funds rate, Again, unprecedented.
What does this mean to you as it investor? Well, the first thing is we talked about the recession. Yes, possibility it's coming, so we have to be careful. We know that equities don't do well in recessions. Now, that being said, here's the bank index.
So I had someone come in this week. They were talking with a big wire house broker, he said it's time to buy financials, great value and they're underpriced. Well, sometimes things are underpriced for a reason. mean, look at this chart right here and you can see it. That is a straight down negative. Everything I look at about banks right now, negative. Why? low rates, banks don't do well with low rates. So this is one of the things that means to you and also the overall recession. Watch. We're going to call it at this point.
DAILY S&P 500
Not much to say except our signal right now is negative. Pretty obvious when you look at this chart. Momentum, negative crossover and volatility is at 19. We've already crossed the 50 day moving average and your 200 day moving average, which is going to be your next level of support.
S&P 500 WEEKLY CHART
Now, what do we see here? Take a look at the channel. We broke that channel even with today's (8/15/19) move. We're down about 1.5% for the week. But the other thing that we have here is that negative crossover in MACD. So our mid-term signal is negative as well.
S&P MONTHLY CHART
Momentum, we have not had that positive crossover. PMO, you can see a negative cross in a big way. So today both of those are fairly negative. But I'm going to call the monthly chart neutral right now.
So right now our signals are negative, negative and neutral. What does that mean to you as an investor? It's time to be cautious. Right now we've got about ten to thirteen percent in cash. We're looking very sector specific. You have to be careful with this type of volatile market.
Now, let's go deeper into what's happening, because that's what we do here. These are companies, the S&P, NASDAQ, Small Caps and Mid Caps, above or below the 50 day moving average. That means the price, the price is above or below the average price over 50 days. Below 40 is bearish on the short term. So we've got the S&P at about 30, we've got the Nasdaq in the 20's and then we have also made in smalls, both in the 20's. Not a good sign short-term.
Here's your 200 day moving average. Same thing, above or below below 40 is negative, and what we see is S&P is at 49, kind of hanging in there, in that neutral space. Same with NASDAQ. But then you see both small and midsize are below 40. That's negative overall.
The last thing and this might be a little too technical for some folks so I apologize. But high, low percent, I'm looking for what's happening with companies as far as going up or down. If two of three are negative, that's bearish. We've got small caps below ten, that's bearish. Mid-caps below 10, that's bearish and then you have S&P only at seven. So, again, another confirmation on what we're seeing right now.
WHAT KEEPS ME UP AT NIGHT
Manufacturing, ugly. Fifty three. You can see that trend and that trend is not your friend, Manufacturing is a leading indicator.
The next one is your global PMI. Same thing. Hello, how ugly is that? Look how many months they've been negative.
Now, again, what does this mean? How does it affect things? Here's Transports
If we're not transporting a lot of goods, because manufacturing is down, it's pretty obvious what's going to happen. You capped out lower, high, lower, high, lower, high, and then boom! We have just broken a level of support that could be an issue. So were going to continue to really watch that one.
We talk a lot about Europe and about how bad things are over there. The EuroStoxx Banks index, look at that line. We're talking about a line going back to 1990. There's are quite a few European banks right now that are in big trouble and really have to watch that.
This shows the market. All the data - retail sales, industrial productions, factory orders, you name it, everything is on this list. You can go back to 2016.
You see the negative numbers. But here's the thing. This is what we've been talking about. In the third quarter of 2018 we peaked. Period, end of sentence. Data peaked and we've gone lower in the fourth quarter and the first quarter. We're getting all the final data right now, which we know is going to be negative.
Earnings. Earnings. Earnings. S&P aggregate and all the individual sectors and you can see the peak right here in 2018, it's obvious. That is not a good trend right there, folks. This is what I've been talking about and that backs it up.
This is earnings through last night (8/14/19), 460 of 497 companies and you can see it again where we are on slow growth, slow earnings. I think the big one here is technology -7.24%. Then we have health care at almost 11% up. We're going to talk about that one next in What's on my Radar and final game plan.
WHAT'S ON MY RADAR
We've been talking about being in interest rate sensitive sectors for quite some time now. One of those other sectors, not interest rateS, but generally does well in this part of the cycle is Health care. Health care from the beginning year looks pretty good, but the reality is kind of flat. It's one of our holdings. The good news is we did bounce off the 200 day moving average and we did see a golden cross. I'm just waiting now. We recording this live right now on Friday morning and it is up quite a bit. Saw one of our research firms yesterday just talking about Medicare for all and potentially affecting that sector right now.
Let's talk about Gold, everybody's favorite subject besides the Yield Curve. Everybody loves gold. This is a great looking chart. There are so many nice things here. You have your golden cross and we continue to soar higher. Positive momentum. I mean, everything about this looks beautiful. Now, the problem is I want to add to gold, but I'm looking for a pullback or a pause which we haven't had. And you can see it correlates with relative strength. This shows some overbought conditions, which is where we are right now. So I'm waiting for that pause so I can add to my overall gold position.
So let's wrap things up with fear and greed.
Fear and Greed is at 19, obviously shows everyone a little fearful right now. Again, our signals two negative, one neutral. What does that mean to you as an investor? Simple. It's a time to be cautious and thoughtful in your changes in allocation changes as well.