In the previous post we illustrated a measure of extreme stock market over valuation in comparing the dividend yield of the S&P 500 to that of the 10yr Treasury Note. That is a bearish fundamental condition, but with no sense of timing.
A still-bullish macro-technical (did I just invent a term?) condition is that the 3 month Treasury Bill yield (a proxy for the Fed Funds Rate), while rising firmly, has still not been negatively diverged by the 2yr Treasury yield, which is also still rising firmly. Not coincidentally, this has kept the yield curve (another potentially adversarial indicator for stocks) in its long-term flattening trend.
There’s always the chance that historical analogs can be broken, but it is a fact that the 2000 and the 2007 stock market tops were attended by a divergence by the 2yr to the T-Bill and that condition is, at 10:02 US Eastern time on November 6th… not currently in place.
Caveat to bulls: Man, that 2000 situation turned on a dime with little warning.
As an aside, looking at the S&P 500 shaded in the background, the spiky thing happening now coming after its massive ramp up does look like a top when compared to the last 2 major market tops. The ‘area’ (as opposed to candlestick) view of SPX really helps make that point.
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