Research Excerpts

The Yield Curve & 2nd Half US Stock Market Direction

Posted on: Monday, August 20th, 2012

The following (green highlights) is a brief excerpt from our August 20th Keys To This Week report, focusing on 1 of the 12 market factors that our research suggests is key to US stock market direction this weekClick here for a sample copy.

Keys To This Week, one of 8 different reports that Asbury Research produces for subscribers 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.

excerpt from Keys To This Week
The US Stock Market
August 20th, 2012

Key #11 of 12>  Yield Curve: US 2s/10s Curve Testing Key Overhead Obstacle.

Chart 4 below plots the US 2-year/10-year Yield Curve daily since August 2009 along with its 200-day moving average (major trend proxy) in the upper panel, with a corresponding daily chart of the S&P 500 in the lower panel (blue bars).

Chart 4 of 9

The red highlights point out that every breakdown through or failed test of the 200-day moving average by the 2s/10s Curve during this period, indicating a bet by the bond market on a softening economy, has either coincided with or led a decline in the S&P 500.

The rightmost highlights on the chart show that the curve is testing key overhead resistance at 152 bps to 161 bps now, which represents the September 2011 narrow extreme in the spread and the 200-day moving average. We would view flattening in the curve from this inflection point as a potential indication of another upcoming decline in the US broad market.


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