Are yields driving the market and equities are the passenger?
That's what this current market cycle that started with a late April top in equities all comes down to. It has only become obvious over the past several trading sessions as yields have moved into parabolic drop territory with global inversion of yields being the current buzzword in the investment community.
As yields have dropped equities are now being pulled into what is a seemingly hopeless vortex similar to Q4 of 2018. Only then it was equities that were leading the precipitous drop in yields.
It was fear of an earnings slowdown.
It was threat of junk rated corporate debt causing a domino effect in high yield market.
And, of course, it was fear over whether China and the U.S. could come to terms on a trade deal.
What has changed with the recent drop is the tail seems to wagging the dog presently. The steep decline in yields during May is beginning to negatively influence the thinking of equity investors. Typically, when this type of reversal of roles takes place, with hallucinations of spider demons among the investor class, markets are nearing an inflection point.
That inflection point may indeed be an important support area for yields on both the 10 year and the 30 year. Both are at or near multi-year support areas, with the thirty year treasury sitting right below a support area with a twenty five year historical record. In other words, it's a significant piece of support.
If yields do decide to suddenly obey the unseen laws of geometric price discovery, reversing off these important points of support, then equities will surely follow. The resulting bottom will, at the very least, be tradeable if not investable.
At the very same time, the NDX is nearing a support area that has been discussed since last week at 7100.
The next few days are everything.
Zenolytics is looking for a bottom of some significance to take place in the Friday-Monday timeframe. The bottom will be for both equities and yields.
Whether this it is a simple tradeable bottom that will be short-lived or an investable bottom that is intermediate term in nature is yet to be determined.
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