Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Chart Of The Day: S&P 500 Technicals, Yield Curve Signal Stock Reversal Ahead

By Investing.com (Pinchas Cohen/Investing.com)Stock MarketsOct 28, 2021 09:33AM ET
www.investing.com/analysis/chart-of-the-day-sp-500-technicals-yield-curve-signal-stock-reversal-ahead-200606636
Chart Of The Day: S&P 500 Technicals, Yield Curve Signal Stock Reversal Ahead
By Investing.com (Pinchas Cohen/Investing.com)   |  Oct 28, 2021 09:33AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

After posting a new all-time high on Tuesday, the S&P 500 Index fell Wednesday, losing 0.5%. The move coincided with a flattening yield curve as the 2-year note, representing shorter term bets, shot up while the longer-term 10-year benchmark bond moved with far less momentum. 

Usually, longer-dated bonds provide a higher yield to compensate for the lengthier wait an investor must tolerate until receiving the principle.

10/2 Spread Daily
10/2 Spread Daily

However, yesterday, short-term yields jumped even as longer-term issues fell. That's a clear indication investors are moving their money out of short-dated notes, causing those yields to pop. When prices for longer-dated Treasuries are bid up, their payout becomes relatively smaller vs the investment, which is why their yields fall.

Presumably, investors are moving their money into longer-term bonds to preserve buying power in the face of the highest inflation in 30 years, as measured by the core personal consumption expenditures index. That's the Fed's preferred measure of inflation, as it excludes volatile food and energy prices.

The metric rose 0.3% in August, up 3.6% YoY. The September PCE data will be released tomorrow and a 0.2% gain is expected for the core measure.

That's the highest it's been since May 1991, prompting Fed Chair Jerome Powell to characterize the development as "frustrating," after insisting for months that inflation was going to be transitory.

Perhaps in anticipation, yesterday, stock investors were shifting funds out of risk assets and into safer havens. 

SPX Daily
SPX Daily

The broad benchmark completed an Evening Star, a three-session bearish pattern.

An Evening Star begins when a rally is still going strong. Bulls add a long green candle. On the following day, the price extends the rally. However, there is a warning sign. The SPX produced only a small candle. On the one hand, it gapped up, supposedly showing momentum. However, it failed to rise beyond its opening price. That could be a cause for concern.

On the third day, Wednesday, the S&P index was unable to extend the rally, falling instead. The picture has flipped from bullish to potentially bearish. Possibly worse, when the price did not merely drop from Tuesday's advance but totally erased Monday's gains, a powerful message of pessimism was being sent. It looks like the bears are in charge now.

Finally, the middle candle is either a shooting star or a high wave candle. Either is bearish, reinforcing signs that sellers are taking over.

Yesterday, the price found support by the previous peak on Sept. 2. Will sufficient buying interest consider the fact that price overcame it as a sign of a continued uptrend? The Rate of Change (ROC) which measures momentum says no.

Trading Strategies

Conservative traders should stay out of this trade, considering it negates the uptrend.

Moderate traders would consider a short if the index retests the 4600 level again and falls back, proving continued oversupply.

Aggressive traders could short at will, provided they accept the risk to match the reward of moving before the rest of the market. Operate according to a coherent plan. Here is an example:

Trade Sample - Short Position

  • Entry: 4575
  • Stop-Loss: 4600
  • Risk: 25 points
  • Target: 4500
  • Reward: 75 points
  • Risk:Reward Ratio: 1:3

Author's Note: Trading is not fortune-telling. Rather, it's working the odds. Traders know there are up and down days. Professionals know not to get excited about either, but if they trust their strategy, they stay the course. The objective is to show steady, consistent returns on a statistical basis. Until you learn how to write a plan that agrees with your budget, timing and temperament, you may use our samples as long as you realize they're for your education only, not profit, or you'll end up with neither. Guaranteed. And there's no money back.

Chart Of The Day: S&P 500 Technicals, Yield Curve Signal Stock Reversal Ahead
 

Related Articles

Chart Of The Day: S&P 500 Technicals, Yield Curve Signal Stock Reversal Ahead

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
Stanton Cameron
Stanton Cameron Nov 01, 2021 8:35AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
👊👊👊
Mohd Izhar Muslim
Mohd Izhar Muslim Oct 29, 2021 7:53PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great Once! thanks for the article 👍
Sebastian Kasza
Sebastian Kasza Oct 28, 2021 12:09PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
what a waste of time
Jerry Gregor
Jerry Gregor Oct 28, 2021 11:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks for your thoughtfil and timely write-ups. How does today's action affect your thought process now with markets soaring... even with a poor GDP? Thanks
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Oct 28, 2021 11:32AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
great trade
Ray Atwood
Ray Atwood Oct 28, 2021 11:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks for the heads up, Pinchas, and nice call a few days ago on Bitcoin!
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email