Courtesy of Doug Short.
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A colleague friend of mine recently mentioned a “Death-Cross” that has presented itself on the US 10year yield chart. He showed that when in the past the 50-day moving average for 10yr yields has moved beneath the 200-day moving average, this Death-Cross has preceded a significant move lower in 10yr yields as money has sought safety in Treasury Bonds, while money has simultaneously flowed from stocks leading to precipitous falls in stock market indices.
These observations about the past crosses are extremely noteworthy, and they present cause for concern from a technical analyst’s perspective. But I would like to explain my view as to why the current set-up might not be an ‘apples to apples’ comparison to past crosses, and why this current cross may not be portending a huge sell-off in stocks.
Below is the first of 2 daily bar charts for US 10yr yields. It showcases the earlier Death-Crosses which did herald significant falls in stock indices. The bold black arrows point to the times when the 50-day moving average for yields (e.g. in blue) moved beneath the 200-day moving average (e.g. in red). The bold green arrows confirm the subsequent fall in yields, and the S&P 500 Index chart that follows confirms the fall in stocks during those same periods (e.g. the fall of 2007, the fall of 2008, the summer of 2010 and the summer of 2011).
The final chart is the second daily bar chart of US 10yr yields. It again showcases the 2010 and 2011 Death Crosses, but also shows the most recent one from this past April. Please note a subtle difference in the April cross from the previous ones referenced. After this most recent cross, yields have moved curiously sideways, while after all of the previous crosses yields quickly plunged lower. This in itself downplays the significance of the current cross in my view. This unwillingness of yields to quickly plunge lower may suggest investors are unwilling to run for cover at this point. That’s not to say they won’t. Nothing is guaranteed. But the technical set-up does appear a bit different this time.
In conclusion, I can’t be certain where stocks go from here, and we are prudent to watch developments, especially when considering the volatility of stocks in recent years and the propensity for stocks to fall hard after previous US 10yr yield Death Crosses. But it does seem that yields are hanging in there this time around, and this fact may lessen the significance of this current cross. However, if anytime soon yields do begin plunging, it could be that stocks do as well.
Dominic Cimino
Chief Investment Strategist
Financial Advisor
Preferred Planning Concepts, LLC
2800 South River Road #240
Des Plaines, IL 60018
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© 2014, Dominic Cimino of Preferred Planning Concepts, LLC (You can explore the services offered by Preferred Planning Concepts by viewing us on our website at www.ppcplanning.com) Any redistribution, reprinting, or reference to this chart or content is allowed so long as reference to the author and source is acknowledged.
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