Beyond The Charts : Reversion Beyond the Mean and the Search for Market Bases

While most investors and traders are focused on the stock market, the bond market tends to drive financial markets overall. That’s because the bond market represents cautious money.

And shifting trades in the bond market reflect interest rates. Interest rates are the cost of capital. With interest rates rising, it’s clear that bond holders are increasingly cautious. That could mean potential danger for stocks ahead.

Plus, the stock market tends to rise and fall much more on animal spirits. However, the bond market has fewer emotional swings. That means investors should pay attention to the bond market.

With bond yields rising, it’s time for investors to get cautious. That doesn’t mean the market rally is over, simply that the biggest part of the move has already been made.

As long as the 200-day moving average is trending higher, investors can expect risk-on conditions. That’s good for stocks, most commodities, and cryptocurrencies.

However, once markets start to level out and trade sideways, it may be a sign to get increasingly cautious. Once the 200-day moving average starts trending lower, it becomes more challenging for investors.

For now, it’s clear that there’s some caution in markets. But the trends are overall positive, even as the bond market gives an early warning.

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