The 10-year yield’s Death Cross has proven to be a pretty significant risk-off shot across the bow over the last decade and this matters today because the 10-year yield put in a Death Cross back in early April of this year. So what does the 10-Year’s Death Cross mean for stocks this time?
The above introductory comments are edited excerpts from an article* by Abigail F. Doolittle (peaktheories.com) entitled What The 10-Year’s Death Cross May Mean For Stocks.
The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Doolittle goes on to say in further edited excerpts:
With the “what’s next” question front and center for most investors, and after the highly bearish trading action of late July and early August, this is certainly worth considering. [As the chart below reveals] there is little doubt that the slicing of the S&P500’s 6-month uptrend has been vicious, but it may be less clear what it all means going forward.
The 10-year yield’s Death Cross (DC) enters the equation here as a handy tool – or “tell” – on what may be ahead for the S&P500 and helps answer the question above.
Typically charts tell the story better than words can and this appears to be one such time in looking at longer-term daily charts of the 10-year Treasury yield and the S&P500 together [as shown below].
In the case of the 10-year yield, however, this is actually a bullish signal for bonds with price trading inverse to yield as investors pile into the safety of Treasuries. Not surprisingly, many of those same investors “pile out” of riskier stocks as shown by the long black arrows pointing to the formal corrections that have occurred after or around the 10-year’s recent Death Crosses.
Put otherwise, the 10-year yield’s Death Cross has proven to be a pretty significant risk-off shot across the bow over the last decade and this is true before, during and after the Fed’s rounds accommodation. After all, the S&P dropped:
- 58% after the 2007 and 2008 Death Crosses in the 10-year yield,
- 17% in conjunction with the 2010 Death Cross and
- 20% after the 2011 Death Cross.
Clearly, it was the first Death Cross that was truly invaluable to investors who heeded its bearish risk-off sounding, but the other two were helpful as well with a quasi-Death Cross in 2012 not treated here. This matters today because the 10-year yield put in a Death Cross back in early April of this year.
In turn, it suggests that “behind the scenes” of the S&P500 and DJIA carving out new all-time highs for much of this year on what charts out as “noise”, some investors have been moving toward safe haven assets and probably for a reason….
Today there are many reasons why some investors have been moving toward safe haven bonds but from the perspective of the charts, it doesn’t matter what the “what” turns out to be. It is more important to take notice of this shift on the risk continuum toward safety with the move away from risk likely to come just as it did in 2008 and in the summers of 2010 and 2011.In turn, it is possible to plan to position portfolios accordingly ahead of the brunt of a potential correction rather than get sideswiped during this possible event with the charts of the S&P500 suggesting at least a sub-1600 correction may be ahead.
Returning, then, to the S&P500’s bearish trading action in the last week of July/first week of August, it is very likely to continue and to intensify based on what the 10-year yield’s Death Cross may mean for stocks.…
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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