Research Excerpts

A Flattening US Yield Curve &
Upcoming US Stock Market Direction

Posted on: Tuesday, April 24th, 2012

The following (green highlights) is an excerpt from our Monday April 24th Keys To This Week report.

Keys To This Week, one of 8 different reports that Asbury Research produces for subscribers at various intervals throughout the month, is a detailed weekly outline of key market factors and corresponding charts pertaining to the US stock market and market sectors, US interest rates, and the US Dollar that are most likely to influence US financial market direction during the upcoming week.

Asbury Research Subscribers can view the entire report by logging into our Research Center via the big gold button at the upper right corner of the screen.


Asbury Research’s Keys To This Week
Monday, April 24th 2012
The US Stock Market

Key # 9 of 12: The Yield Curve.
US 2s/10s Curve Is Flattening From Major Resistance:
BOND MARKET BETTING ON WEAKENING ECONOMY.

Chart 2 below plots the US 2-year/10-year yield curve since 2010. The red highlights point out that during the past month the curve has tested, failed at, and is now flattening from major overhead resistance at 188 bps to 199 bps, which represents its 200-day moving average (a widely-watched major trend proxy, orange highlights) and its August 2010 narrow extreme (red highlights). This recent sharp reversal in the 2s/10s curve, which has narrowed to 170 bps through the end of last week, suggests that the forward looking bond market is now starting to price in a weakening US economy in Q2/Q3 2012.

Chart 2

Chart 3, which plots the S&P 500 daily since 2009 in the upper panel (black bars) and US 2 year/10 year yield curve in the lower panel (blue line), shows that a flattening yield curve led US stock market peaks in April 2010 and May 2011.

Chart 3

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