Inverted Yield Curve
Inverted Yield Curve

Inverted Yield Curve


A series of lower lows and lower highs remain in place in the popular stock indexes in an inverted yield curve environment, which means the bear market remains in effect. However, the five-week trading range dating to the S&P-500 June low at 3636 may be on the cusp of a breakout above the high of the range according to TATY, SAMMY and STERLING, which represent dozens of supply and demand indicators all suggesting the same potential breakout above the high of the range. Investors should be aware that a powerful rally in a bear market does not a bull market make, and any breakout higher would likely be only be a rally in an ongoing bear market according to the weight of the evidence in the Lowry Research system and according to our own proprietary supply and demand indicators.


Inverted Yield Curve

A series of lower lows and lower highs remain in place in the popular stock indexes, which is the classic definition of a down trend. However, ever since the low to date for the bear market in June at S&P-500 3636 the stock market has been meandering with overlapping movements within a trading range unable to generate enough strength to breakout higher, nor develop enough weakness to continue the bear market lower. Dog days of summer, or low volume summer doldrums awaiting the next Fed decision, or uncertainty over the upcoming late July Fed meeting within an environment of higher-than-expected inflation numbers having just been posted has resulted in lots of buying and selling energy being expended with only a trading range to show for the effort. However, the unfavorable spread between Lowry Buying Power and Lowry Selling Pressure has widened during this indecisive trading range and Lowry Research remains negative on the market.

The spread between the yield on the two-year Treasury note and the ten-year Treasury bond inverted again this past week by almost twenty-five basis points. Not every inversion of the yield curve has resulted in a recession, however recessions do tend to be accompanied by yield curve inversions. So, advantage the notion of a recession is likely before this bear market is over, and given the record metrics in numerous financial excesses near, or at the January 4th all-time high in the S&P-500, investors would likely be wise to expect the retreat from those historic extremes will likely be favorable to extraordinary volatility, or outright chaos as the pendulum swings back in the opposite direction, and perhaps taking more time in the process to reach a final bottom than most financial institutions and pundits expect.

I said “final” bottom deliberately, because of the unprecedented size of the historic excesses preceding the January 4th top the odds are favorable that some financial institutions and/or pundits will declare an end to this bear, which will likely turn out to be a bear trap following perhaps a series of false bottoms. A breach of S&P-500 2190, the March 23, 2020 low, would confirm the existence of a bear market of a large but unknown degree, and bring into play the potential for multiple bear traps due to false bottoms being mistaken by financial institutions, pundits and/or financial advisors for the real thing. There is a tendency in this business to project the recent past into the future, and there is abundant and increasing evidence that this time round that kind of thinking may be hazardous to one’s wealth.



TATY is shown above in yellow with the S&P-500 overlaid in red and blue candle chart format. TATY finished the week at an improved 114, but still below the down sloping magenta negative divergence line dating to last August. Should TATY develop enough strength to rally above the magenta negative divergence line only to stall out near, or in the red zone surrounding the 140 level, then the requirements for a new “Big Chill” warning will have been completed. TATY “Big Chill” warnings have a consistent and remarkable record of preceding significant tops or rebound countertrend tops during bear market rallies. Please also notice the green positive divergence in the Premium/Discount part of the indicator in the lower panel. Taken together one can make a case for the price to breakout above the top of the five-week trading range in the days ahead. However, the weight of the evidence suggests such a breakout would likely still be a bear market rally, and unlikely to breach the resistance shown on Screenshot-916 as dashed horizontal lines at approximately S&P-500 4100 (magenta) and 4300 (red).



SAMMY is shown above in yellow with the S&P-500 eMini futures contract overlaid in red and green candle chart format. SAMMY touched its highest level since the beginning of the bear market this past week and finished the week touching its dashed magenta negative divergence line, which implies TATY maybe correctly foreshadowing a breakout above the recent five-week price trading range. If SAMMY continues to gather strength, then an upside breakout in the price will likely follow. However, if SAMMY weakens then the price will likely remain range bound.



STERLING is shown above in the upper panel with the S&P-500 eMini futures contract shown in the lower.  STERLING has gone days before finally issuing an only one-day positive divergence shown as an upsloping dashed green line in the upper panel, as opposed to the down sloping green dashed line in the lower price panel. STERLING has a history of negatively diverging as short to intermediate term rallies are expiring, so if STERLING does begin to negatively diverge in the days ahead, and TATY issues a new “Big Chill” warning, and SAMMY fails at the dashed magenta negative divergence line, or dashed horizontal red resistance line, then the bear trend would likely be poised to resume its decline, possibly including an acceleration lower.

Screenshot (916)

Screenshots-916 (above) and 917 (below) are for your additional information and perspective on the S&P-500 eMini futures contract and S&P-500 cash index, respectively, through Friday’s close. Screenshot-917 shows the S&P-500 cash index with Fibonacci projections beginning from the March 23, 2020 low at approximately 2190 and the March 9, 2009 low at 666. The retracement levels for both projections show color coded retracement percentage levels, respectively, with orange equal to the 25% level, red 38%, yellow 50% and green 62%. Investors will notice that Fibonacci projections beginning from two different lows “nest” at the 3200 and 3800 levels, of which the 3800 level has already been bested multiple times. This implies that a resumption of the bear market would likely receive some substantial support at the 3200 level. Additionally, support created during the long bull market climb to the all-time high at 4818 is shown as blue rectangles, some of which will likely come into play, if the bear market resumes as expected after the expiration of the current bounce.

Screenshot (917)


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