- New Science in old markets -

Update on the Equity turn, T-bonds break upward

We were expecting a turn in equity markets on Friday 22nd February. For us this means that a cluster of individual turns in the many equity indices that we follow is due on or around a single date and this one comprised mostly US indices, all of which were due to turn that day. The prior trend is all-important when determining if such a turn will mark a high or low point, so we always wait until the day arrives to have the maximum information available at that moment. This turn coincided with a lot of news-driven churning.  In consequence, the main US indices made both a multi-week high and a low on the next day. This obviously means that the turn came a day late but still does not tell us if it marked a high or a low or which way to expect prices to move from now on.

There is another clue however. There have been a number of compressions in US indices in the past few days. The first of these was in the Nasdaq, as already reported, but now there have been new ones in the Dow (marked in blue in the 1st chart in this edition) and the S&P100 (right-hand chart, immediately below).

The coincidence of turn with compression is powerful and has the effect of ‘turbo-charging’ the compression. Whichever way these break will be the new trend. As I write, both the Dow and the S&P100 are trading above their compressions, but it is too early in the trading day to call this an ‘upward break’.  The Nasdaq compression is also very wide, so will not break easily in either direction. We continue to wait.

In the meantime, US T-Bonds and T-Notes have broken from their compressions. These signals were reported as a compression in 5-year note yields in the 22nd February edition - here is an update, together with the 10-year equivalent.

Don’t forget that these fixed income yield charts are the inverse of price charts, so they fall as prices rise. If you were able to ‘buy the break’, stay long now as we suspect that there may be substantial further gains in these already extremely expensive instruments in this current mad period in world financial history. If you didn’t, buy any decent dip.