QT is definitely not the only variable. If you take a look at the last time we had QT, bond yields briefly rose then reversed and dropped dramatically during the majority of the QT period.
With the current technical setup (extreme overextension and losing steam) it seems upside for yields is limited (any positive effect from QT has been priced in). We saw a similar setup in 2018, bond yields spiked dramatically the moment QT began then proceeded to form a large topping pattern.
As I have posted a number of times, inflation is the horse driving the FED interest rate cart. Bond yields falling due to investors fear of a recession — which may cause inflation to moderate and/or the FED to pivot — does not lead to new ATH imo. A short term rally to new ATH is the goldilocks rally, and a recession is not part of the story for a rally to new ATH.
Inflation is the horse before the cart for the FED. Bond yields rolling over because of a recession or fear of a recession is NOT a catalyst for a rally to ATH imo. A short term rally to new ATH requires a goldilocks scenario where everything is considered just right and investors believe the FED has succeeded in engineering a soft landing. A recession imo, or even dramatically lower growth and corporate earnings, doesn’t take us to ATH. Right now the story isn’t a soft landing and investors aren’t buying the dips. That could of course change.
Can you please explain to me why the 10-year yield is so important that it over shadows the rest? Why isn’t the 30 or 20 year or even the 5 year as important? Do the other yields follow the 10 year?
The two year tends to anticipate the Fed funds rate so it’s important. The 10 year seems to affect mortgage interest rates so also important. All yields are important but those two have additional significance.
Thanks Peter. I hope your thesis is correct and you prove me wrong. However I’ve been trading for 30 years and I feel we’re right now at a similar position to Sept 2008, when we had another 6 months of falls to go. So I would say the 13 year bull market which started Mar 2009 ended in Jan this year. The Fed needs a hard landing to bring inflation back to their preferred range, which would crash the markets just like we’re seeing now. So all time highs are not likely to occur until the next bull cycle, which I hope will start in 2023.
Too many people who are way too chill given the neg sentiment. Everyone is looking for the bear market rally to get out of their longs at a good price, which is maybe why stonks can decline a lot more.
Steve, Agreed. I’ve coined a short term rally from here to ATH the goldilocks rally because everything must be just right. And a recession isn’t part of the soft landing scenario. That’s a hard landing. Which I believe is what is being priced into the market right now, ie the odds of a recession increasing.
@GOT, You switched to buy on May 4th, but the market dropped significantly from there and did not tag 15% on NDX 200 day until May 9th, and you seem to circle today’s prices for that buy call. What am I missing?
Maybe if you see a call like that back in April you can alert us in real time, even if just on twitter when triggered.
Thanks.
Yes, you are correct.
However, I was not trying trying to complain about the correctness. I was confused because it seemed like Peter was misrepresenting the timing. He basically said he correctly called the bottom around yesterday’s 5/19 prices but referenced call he actually made on 5/4. But the actual trigger he referenced was not 5/4 or even 5/19 but actually 5/9.
I guess my main concern is that I try to follow, and it is hard to catch all the buy/sell signals in real time that Peter later says he called. Sometimes it is dates like this latest call, sometimes it seems he says “risk reward is not as good here” and later that is a hard “sell.”
Just trying to calibrate.
Thanks for the analysis Peter, but still don’t understand why an increase in US10Y put pressure on tech stocks. Yields had a strong bullish reverse since Aug 2020 and the Nasdaq run for another 56%. Would also be interesting to discuss why BTC lost its positive correlation to US10Y since Nov 2021. Could it be because that month the FED started to have a hawkish narrative?
As I’ve posted before, a rally to ATH from here is a Goldilocks scenario. Everything must be “just right” including the story that the FED has engineered a “soft landing” = inflation dropping significantly, economy and employment still strong even if a little weaker. Bond rates would decline. What we are seeing now however is not that soft landing scenario. Instead the market seems to be pricing in a recession after Target and Walmart with a weak consumer. Sure that brings bond yield rates down, but not because the FED has been successful but because investors anticipate a recession. As I’ve posted before, I don’t see any rally to ATH if we get a recession. The story has to be everything is just right, and we don’t have that now which is why bonds are falling but so is the stock market.
The GoT thesis was that if the bond yields start to stabilize, the stock market – especially the tech stocks – should stabilize too. In the last four weeks yields seem to be stabilizing, bonds are actually increasing and yet, stocks falling. Something seems to be wrong.
It’s called a divergence which is usually a good leading indicator. Company valuations are calculated by future discounted cash flows. As yields rise those discount rates rise with it which makes those companies less valuable. When the opposite happens and yields drop that makes valuations higher. Yields are only one side of the equation. Company earnings growth also play a big role. But assuming everything stays constant, lower yields are very bullish for stocks (especially tech)
What’s the story driving bond yields lower? It’s not dramatically reduced inflation, it’s a dramatically slowing economy and lower anticipated corporate profits, or recession. You mentioned corporate profits and right now the market is pricing in those to be lower, which offsets the lower discount rate. And if inflation doesn’t moderate and the FED barges ahead with rate hikes, expect those rates to rise.
Yes agree something is very wrong. all the calls that have been made appear to be flat out wrong. tech, Russell, yields, s and p and nasdaq calls have all gone in the opposite way of the thesis for 5 very painful months. At what point does one go back to the drawing board?
Erik, my two cents. Bond yields dropping due to fear of recession isn\’t positive for stocks. I believe that is what is going on right now. Bond yields dropping due to inflation moderating without substantially slowing economic growth is positive for stocks. I disagree that bond yields dropping necessarily leads to a stock rally. It depends on why bond yields are dropping. If the answer to that is pricing in a recession, I don\’t see stocks rallying to new ATH.
Thx for helping \”maneuvering\” the markets , I couldnt have done it worse! – you are basically irresponsibly promoting a great rally even though every half seasoned trader would never buy at your \”calls\” as thats just similar to catching a falling knife – so basically what every newbie is trying to do. It looks like you tried way too hard to be so massively against all other views,…sometimes when it looks bad, then it maybe just is bad your many analysis and charts are impressive/fancy and very suitable to provide the illusion of false confidence After all, best thing I learned is – literally all services providing so called \”insights\” in the market are just there to make money out of fancy charts for the provider I am out, cancelt all memberships I had, you are the last one I will cancel now as there is no real value in it,…. Your approach would only work with full information, which by default is impossible Cheers I am not complaining, am just not up his arse,… PS: 2nd thing I learned is that 80% of subscribers seem to have stockholm syndrome ,…fazcinating
Peter called a \”bad entry point\” at the very top of the sp500. Peter called a larger pullback than we had been having. I beat the market in my wife\’s IRA with Peter\’s help going to value and dividend, then to QQQ, then back to SP500. The only reason Peter gets so much credit is he is correct most of the time. Nobody\’s perfect. Good luck! P.S. Being insulting and vulgar does not help.
Peter, you constantly mention overbought and oversold levels. I have always found the RSI a frustrating indication of market state until a wise man once told me that in a bear market there is no such thing as oversold and in a bull market no such thing as overbought. What are you views… is this a truism? If so, should we be paying less attention to oversold levels in the S&P right now and more attention to strength of momentum and all that it entails (aka the trend is your friend)?
I used to love GOT analysis and still like to study, but majority of his calls for the past few months were wrong. Here are few of them: 1. Last year q3-q4 call, that growing 10 year yield wil be positive for risk assets: equities, BTC including, we know how it ended: -30% drawdown on risk assets. 2. Beginning of this year forecast on Oil short trade, when it was around 85$, it reached 128$. 3. Peak of 10 year yield around 2,15%, it reached 3,20%. 4. Bottom of S@P 500 correction at 4150 and new ATH afterwords. So far it reached 3811 and after upcoming bounce most probably going lower.
Thank you Peter. When the Fed does QT starting in June, wouldn’t that selling pressure bring bond yields higher rather than lower?
QT is definitely not the only variable. If you take a look at the last time we had QT, bond yields briefly rose then reversed and dropped dramatically during the majority of the QT period.
With the current technical setup (extreme overextension and losing steam) it seems upside for yields is limited (any positive effect from QT has been priced in). We saw a similar setup in 2018, bond yields spiked dramatically the moment QT began then proceeded to form a large topping pattern.
As I have posted a number of times, inflation is the horse driving the FED interest rate cart. Bond yields falling due to investors fear of a recession — which may cause inflation to moderate and/or the FED to pivot — does not lead to new ATH imo. A short term rally to new ATH is the goldilocks rally, and a recession is not part of the story for a rally to new ATH.
Inflation is the horse before the cart for the FED. Bond yields rolling over because of a recession or fear of a recession is NOT a catalyst for a rally to ATH imo. A short term rally to new ATH requires a goldilocks scenario where everything is considered just right and investors believe the FED has succeeded in engineering a soft landing. A recession imo, or even dramatically lower growth and corporate earnings, doesn’t take us to ATH. Right now the story isn’t a soft landing and investors aren’t buying the dips. That could of course change.
Can you please explain to me why the 10-year yield is so important that it over shadows the rest? Why isn’t the 30 or 20 year or even the 5 year as important? Do the other yields follow the 10 year?
The two year tends to anticipate the Fed funds rate so it’s important. The 10 year seems to affect mortgage interest rates so also important. All yields are important but those two have additional significance.
Thanks Peter. I hope your thesis is correct and you prove me wrong. However I’ve been trading for 30 years and I feel we’re right now at a similar position to Sept 2008, when we had another 6 months of falls to go. So I would say the 13 year bull market which started Mar 2009 ended in Jan this year. The Fed needs a hard landing to bring inflation back to their preferred range, which would crash the markets just like we’re seeing now. So all time highs are not likely to occur until the next bull cycle, which I hope will start in 2023.
Too many people who are way too chill given the neg sentiment. Everyone is looking for the bear market rally to get out of their longs at a good price, which is maybe why stonks can decline a lot more.
Steve, Agreed. I’ve coined a short term rally from here to ATH the goldilocks rally because everything must be just right. And a recession isn’t part of the soft landing scenario. That’s a hard landing. Which I believe is what is being priced into the market right now, ie the odds of a recession increasing.
For those who follow two legged pullbacks we are probably close to completing that pattern.
@GOT, You switched to buy on May 4th, but the market dropped significantly from there and did not tag 15% on NDX 200 day until May 9th, and you seem to circle today’s prices for that buy call. What am I missing?
Maybe if you see a call like that back in April you can alert us in real time, even if just on twitter when triggered.
Thanks.
@
MAXROTHIRA
Please note, that there is no God in Financial Markets – everyone can be wrong.
Even a businesslike analysis composed of many powerful indicates do not get 100% right or certain in Finance
Only for example, it’s not an attack on GOT:
FEBRUARY 14, 2022 – Bearish Engulfing Candle On The USD | Emerging Markets Begin To Outperform | Will The Oil Breakout Hold?
DXY
GOT = bearish RSI divergence + bearish engulfing candle set up
DXY – 97,365 ——— 104, 885 a huge mistake
OIL
GOT trade – short Crude OIL from 95,94 –
then – move to 130 $, a huge mistake
GOT analysis
SP500 max downturn- 4500, yesterday SP was testing 3860
Nasdaq max downturn – 15 000, yesterday Nasdaq was testing 11 700
Yes, you are correct.
However, I was not trying trying to complain about the correctness. I was confused because it seemed like Peter was misrepresenting the timing. He basically said he correctly called the bottom around yesterday’s 5/19 prices but referenced call he actually made on 5/4. But the actual trigger he referenced was not 5/4 or even 5/19 but actually 5/9.
I guess my main concern is that I try to follow, and it is hard to catch all the buy/sell signals in real time that Peter later says he called. Sometimes it is dates like this latest call, sometimes it seems he says “risk reward is not as good here” and later that is a hard “sell.”
Just trying to calibrate.
Thanks for the analysis Peter, but still don’t understand why an increase in US10Y put pressure on tech stocks. Yields had a strong bullish reverse since Aug 2020 and the Nasdaq run for another 56%. Would also be interesting to discuss why BTC lost its positive correlation to US10Y since Nov 2021. Could it be because that month the FED started to have a hawkish narrative?
As I’ve posted before, a rally to ATH from here is a Goldilocks scenario. Everything must be “just right” including the story that the FED has engineered a “soft landing” = inflation dropping significantly, economy and employment still strong even if a little weaker. Bond rates would decline. What we are seeing now however is not that soft landing scenario. Instead the market seems to be pricing in a recession after Target and Walmart with a weak consumer. Sure that brings bond yield rates down, but not because the FED has been successful but because investors anticipate a recession. As I’ve posted before, I don’t see any rally to ATH if we get a recession. The story has to be everything is just right, and we don’t have that now which is why bonds are falling but so is the stock market.
The GoT thesis was that if the bond yields start to stabilize, the stock market – especially the tech stocks – should stabilize too. In the last four weeks yields seem to be stabilizing, bonds are actually increasing and yet, stocks falling. Something seems to be wrong.
It’s called a divergence which is usually a good leading indicator. Company valuations are calculated by future discounted cash flows. As yields rise those discount rates rise with it which makes those companies less valuable. When the opposite happens and yields drop that makes valuations higher. Yields are only one side of the equation. Company earnings growth also play a big role. But assuming everything stays constant, lower yields are very bullish for stocks (especially tech)
What’s the story driving bond yields lower? It’s not dramatically reduced inflation, it’s a dramatically slowing economy and lower anticipated corporate profits, or recession. You mentioned corporate profits and right now the market is pricing in those to be lower, which offsets the lower discount rate. And if inflation doesn’t moderate and the FED barges ahead with rate hikes, expect those rates to rise.
Yes agree something is very wrong. all the calls that have been made appear to be flat out wrong. tech, Russell, yields, s and p and nasdaq calls have all gone in the opposite way of the thesis for 5 very painful months. At what point does one go back to the drawing board?
Erik, my two cents. Bond yields dropping due to fear of recession isn\’t positive for stocks. I believe that is what is going on right now. Bond yields dropping due to inflation moderating without substantially slowing economic growth is positive for stocks. I disagree that bond yields dropping necessarily leads to a stock rally. It depends on why bond yields are dropping. If the answer to that is pricing in a recession, I don\’t see stocks rallying to new ATH.
Thx for helping \”maneuvering\” the markets , I couldnt have done it worse! – you are basically irresponsibly promoting a great rally even though every half seasoned trader would never buy at your \”calls\” as thats just similar to catching a falling knife – so basically what every newbie is trying to do. It looks like you tried way too hard to be so massively against all other views,…sometimes when it looks bad, then it maybe just is bad your many analysis and charts are impressive/fancy and very suitable to provide the illusion of false confidence After all, best thing I learned is – literally all services providing so called \”insights\” in the market are just there to make money out of fancy charts for the provider I am out, cancelt all memberships I had, you are the last one I will cancel now as there is no real value in it,…. Your approach would only work with full information, which by default is impossible Cheers I am not complaining, am just not up his arse,… PS: 2nd thing I learned is that 80% of subscribers seem to have stockholm syndrome ,…fazcinating
Peter called a \”bad entry point\” at the very top of the sp500. Peter called a larger pullback than we had been having. I beat the market in my wife\’s IRA with Peter\’s help going to value and dividend, then to QQQ, then back to SP500. The only reason Peter gets so much credit is he is correct most of the time. Nobody\’s perfect. Good luck! P.S. Being insulting and vulgar does not help.
@GOT: Why are there slashes in comments? I did not put them there. They are distracting when reading.
Peter, can you revisit the moving averages. They appear to be broken. Faster ones below the slower.
Peter, you constantly mention overbought and oversold levels. I have always found the RSI a frustrating indication of market state until a wise man once told me that in a bear market there is no such thing as oversold and in a bull market no such thing as overbought. What are you views… is this a truism? If so, should we be paying less attention to oversold levels in the S&P right now and more attention to strength of momentum and all that it entails (aka the trend is your friend)?
I used to love GOT analysis and still like to study, but majority of his calls for the past few months were wrong. Here are few of them: 1. Last year q3-q4 call, that growing 10 year yield wil be positive for risk assets: equities, BTC including, we know how it ended: -30% drawdown on risk assets. 2. Beginning of this year forecast on Oil short trade, when it was around 85$, it reached 128$. 3. Peak of 10 year yield around 2,15%, it reached 3,20%. 4. Bottom of S@P 500 correction at 4150 and new ATH afterwords. So far it reached 3811 and after upcoming bounce most probably going lower.
\”Beware of false prophets\” 🙂