📈 Flashing Caution Stock Signals

The stock market continues to frustrate traders. The overnight moves are swift and leading to gap up or gap downs in the indexes. The majority of the moves have been based on the banking crisis. We are getting information globally 24/7 as to which banks are safe and which have issues. Its a fair assessment that the banking crisis is taking precedent over the inflation issue. We have seen the largest swings in Treasury yields in decades. All this volatility is causing asset classes to be out of alignment as well as make investors skittish. This leads to more imbalances and/or potential massive swings in the equity and bonds markets. Essentially it becomes a self fulfilling prophecy.

Two Year Treasury compared to the Fed funds rate is currently inverted. This means it costs more interest for banks to borrow then they can get from investing those funds into a two year treasury. Recently the spread has been over 75 basis points for the 6th time in 40 years.

MOVE is the bond option volatility index. We are currently at a reading higher than the pandemic. The only time this index has been higher in 10 years is the global financial crisis. Essentially this shows how bond investors are buying protection on their bonds.

NASDAQ(green) compared to the Nasdaq advanced decline line AD (blue) Think of the line as the breadth of the market. The moves should highly correlated. The red lines are examples of when this does not happen. Historically the Index will follow the AD line.

These three charts give an example of only some of the imbalances that are happening right now. For a more in depth look watch the video below. I go into great detail on the signals smart money is giving and one indicator that predicted the market top on November 2021.I list 5 stocks to watch as well as key levels on the indexes.

Wishing Everyone Massive Success in 2023 🍾