Game of Trades: This Has Triggered All Great Market Collapses in the Last 30 Years
The S&P 500 has been trending down since late last year. Even with a 20 percent rise off of June’s low, that downtrend remains intact as markets have hit their downward resistance.
After this strong and quick move higher in the past few weeks, some pullback seems likely. However, we could see an even steeper move lower, rather than a potential market bottom.
A few reasons explain why such a move lower could be likely, even with some promising economic signs. One is that the MACD, or moving average convergence/divergence trend line hasn’t yet been strong.
Such a move occurred in late 2008, right before the biggest downdraft in the stock market during the Great Recession.
Another sign of weakness right now is based on inverted Treasury yield curves. While that’s mostly focused on monetary policy, two-year bond yields are yielding more than ten-year yields.
Historically, this has always signaled a recession, whether weak or not. It may play out over the better course of the next 12-18 months. It’s a sign that the bond market expects the Fed to over-tighten on interest rates. And, that those rates should come down in the coming months.
However, not all parts of the yield curve has inverted. That’s throwing off another signal to investors that things may not be as bad as they seem. Overall, however, there’s clearly a slowing economy as interest rates rise, and that could lead to a further downswing in the market.