[We are at a major crossroads in the equity and bond markets.] We could see a major ‘risk-on’ rally in the S&P 500 BUT if no equity rally ensues, and U.S. Treasury note yields keep falling, then something terrible is about to strike at the heart of the global capital markets…. [As such, it is imperative that you keep a close eye on this new ‘Peak Price’ indicator. Let me explain.] Words: 450
So says John DiCecco (www.TrendCharts.ca) in edited excerpts from his original article* as posted on Seeking Alpha.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
DiCecco goes on to say, in part:
We have noticed something very interesting: the TLT (20-year U.S. Treasury notes) is above 122 and, over the last 12 months, any time the TLT has traded above 122 it has signaled the end of equity sell-offs (peak of fear) and the beginning of a new equity bull run.
Let’s look at what happened to the SP500 on the two previous dates that the TLT traded above 122.00.
- October 4, 2011– the TLT hit an intra-day high of 122.16 and the SP500 hit an intra-day low of 1,074. The SP500 rallied from this low and hit a peak high of 1,284 on October 27 for a gain of 19.5% since the 122 reading on the TLT.
- December 19, 2011 – the TLT hit an intra-day high of 122.43 and the SP500 hit an intra-day low of 1,202. The SP500 then rallied from this low and hit a peak high of March 26, 2012 for a gain of 17.8% since the 122 reading on the TLT.
On May 17, 2012 the TLT hit an intra-day high of 124.28 and the SP500 hit an intra-day low of 1,304.
An 18% bounce in the SP500 from this low (similar to the bounces that occurred in October and December) would bring the SP500 to 1,538.
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Will this time be different or have we once again hit the floor for the yield on U.S. Treasury notes? That is, there is nowhere to go but up from here for yields, which in turn means that equity markets will also stop falling and we will experience a strong ‘risk-on’ rally?
If we do see a 15% to 19% rally in the SP500 over the next six weeks we will be able to officially name the TLT as the new Peak Fear Indicator for capital markets.
If no equity rally ensues and the TLT keeps climbing higher, and U.S. Treasury note yields keep falling, then something terrible is about to strike at the heart of the global capital markets….
*http://seekingalpha.com/article/601171-the-peak-of-fear?source=email_macro_view&ifp=0 (To access the above article please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
Marc Faber has stated in an interview* on Bloomberg Television that “I think the market will have difficulties to move up strongly unless we have a massive QE3 (something Faber thinks would “definitely occur” if the S&P 500 dropped another 100 to 150 points. If it bounces back to 1,400, he said, the Fed will probably wait to see how the economy develops)….. If the market makes a new high, it will be with very few stocks pushing up and the majority of stocks having already rolled over….If it moves and makes a high above 1,422, the second half of the year could witness a crash, like in 1987.” Words: 708
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