Posts filed under “Technical Analysis”

2 Studies on the Flattening Yield Curve

A reader asked about prior studies on a flattening or inverting yield curve, wondering  "what have they concluded?"

Quite a few other analysts have looked into the question. Here are two worth considering:

Bill Gross, who manages the world’s largest Bond fund — and therefore better know about this stuff –  featured the chart below last month.

Gross’ conclusion? "By the time 10-year and 2-year Treasuries reach parity, as is almost
the case now, the economy is typically slowing and the Fed is at or
near the end of its tightening cycle."

Here is his relevant chart:

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click for larger graphic

Bg_inversion

Courtesy of PIMco

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Gross also observed that "Economists/investment managers are aware of the potency of a flattening yield curve (shown in Chart above). . . Only [former Fed Chair] Volcker, with his need to strangle inflation out of the system, persisted into negative yield curve territory for longer than a few months."

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Further, I happened to come across this commentary — A Study on the Flattening Yield Curve — of post-1970 inversions.

The study’s generalized conclusions?

  1. Recessions have been preceded by yield curve inversions since 1970.
  2. lead time averages over 40 weeks.
  3. The S&P 500 does not do well when the yield curve is inverted (performance measured over the entire span of the inversion).

The chart accompanying that commentary  shows yield curve inversions relative to the S&P500.

 

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click for larger chart

1213_1

See the rest of the charts form various studies here.

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UPDATE: December 29, 2005  1:30PM

I have made repeated references to never relying upon one lonesome single indicator, burt some of the newer reader smay have missed them. For those of you haven’t done so yet, please see Single vs. Multiple Variable Analysis in Market Forecasts . . .

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UPDATE 2: December 29, 2005  3:03PM

Dave Altig of MacroBlog fame suggests NY Fed’s Arturo Estrella yield curve primer:  The Yield Curve as a Leading Indicator. Its another excellent (if somewhat jargon laden) source.

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Source:
Takin’ It To The Blog
Bill Gross
PIMCo Investment Outlook, November 2005
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO+November+2005.htm


A Study on the Flattening Yield Curve

Ron Griess
The Chart Store,  December 13, 2005
http://www.financialsense.com/editorials/griess/2005/1213.html

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation, Technical Analysis

Alaska is Melting . . .

It seems that the melting polar ice is becoming more of a concern to Alaskans than those of us in the lower 48. click for larger graphic courtesy of  Anchorage Daily News > Thank goodness there’s no Global Warming — imagine how much more of Alaska would be melting if there was! > See also:…Read More

Category: Science, Technical Analysis, UnScience

100 Year Dow Jones Industrials Chart

Have a look at this 100 year (actually, 105-Year) chart. I colored each “Market” appropriately — Green for Bull, and Red for Bear — to more clearly show what happens. Bull markets get ahead of themselves. At their ends, they tend towards excesses that take a very long while to recover from. When a long…Read More

Category: Markets, Psychology, Technical Analysis

4 Year Presidential Cycle

This is the first of 4 charts I plan on revealing this week. Each one will hopefully shed some insight into what we may expect in 2006. This chart shows what is known as the 4 year or Presidential Cycle. The theory behind this is that U.S. markets have a tendency to make a high…Read More

Category: Markets, Technical Analysis

Inverted Yield Curve: Its different this time (not)

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation, Technical Analysis

Activity Afoot in Rove Indictment Futures

Category: Politics, Technical Analysis

Global Weather Volatility is a Strong Buy (Short UnScience)

Category: Science, Technical Analysis, UnScience

Gold Yearly Data Analysis

Category: Commodities, Inflation, Technical Analysis

Impossible Returns? Hardly . . .

Category: Hedge Funds, Investing, Technical Analysis

Apprenticed Investor: Stop-Loss Breakdown

Category: Technical Analysis, Trading