US Treasuries Suggest Something Bigger

US Government Bonds and notes suggest a more significant change is happening as the equity markets revisit the 200-day moving average from below.

Below is the 2-year yield monthly chart. There are a couple of critical pieces of information on the chart. First of all, reviewing the RSI indicator suggests that when the indicator falls below 70, this can be an important signal. In the PPO indicator which shows momentum, the rollover in monthly momentum is very serious. The 2016 market pullback gave a false signal, but the other peaks were helpful.

Unfortunately, we also see the same indicators and yields rolling over on the 5-year. Notice how the 2014 signals on the RSI and the PPO momentum showed up in early 2014, the equity market never rolled over until mid 2015. The weak RSI reading in 2014 topped for the yield market, but the equity market never rolled over until 2015. The weak signal also didn’t translate to a good timing signal. The other dates where the indicators peaked were very helpful on a timely basis. These long term monthly charts suggest that equity investors should maintain vigilance as there is a higher probability that these strong signals mark changes in the bond market that may show up in the equity market. The two other peaks in the RSI were very valid timing signals that also affected the equities. The RSI rolling over after hitting 70, is a more powerful signal than the signal in 2014.

One of the most important markets is the ten-year treasury yield. The RSI indicator never reached the same overbought levels as the 2-year and 5-year yields. I have dropped a line down on the $SPX to show the timing of the signals on the treasury and the indicators. It was a meaningful offset of 6 months that suggests this might not be a helpful, timely top due to the signals not being triggered at the same time on the chart. The same time lag occurred on the 5-year yield. However, with all of the yield charts giving a current signal at the same time now, this might be a more important signal than early noise.

Intermarket analysis uses different charts and cross references the information to other asset classes to see if we can find helpful timely information and clues. Using the treasury market to confirm a market top in the $SPX is not new. The current indicator signals and yield action appear to be confirming a more major top and this suggests a very strong dose of caution for equity investors.