Notable low for S&P 500 isn’t in yet

The vertical lines show the significance when the Japanese 10 year bond yield is (on a weekly chart) simultaneously OVERSOLD and trading 2.5 standard deviations and BELOW its rolling weekly mean.

Around the same time, the S&P 500 also registers a notable low.

There have been 9 such moments over the past 15 years when probability suggests nibbling and adding to your holdings.

BoJ and Fed news this week will be helpful shaping the JGB yield but this study suggests the S&P 500 low isn’t there yet. This doesn’t necessarily mean a lower low, but rather a ‘notable’ low.

September 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

Extremes in JGB yields are S&P 500 Buy/Sell signals

A month ago, I published this study highlighting the correlation whenever Japanese 10 year bond yields are overbought and oversold happen to signal a corresponding low or high in the S&P 500.

Looking for peaks in equity markets

In the chart below, the vertical lines show the significance when the Japanese 10 year bond yield is (on a weekly chart) simultaneously Overbought and trading 2.5 standard deviations above its rolling weekly mean.

The S&P 500 then reaches a meaningful, long term peak.

There have been 5 notable moments over the past 15 years.

The most recent peak coincided with my December 28, 2021 newsletter citing the same point.

https://mailchi.mp/karriasset/a-distorted-sp-500-amongst-extreme-peaks.

August 6, 2022

by Rob Zdravevski

rob@karriasset.com.au

My confusion about Japan

 

If I “umm” and “ahh” long enough about something, my instinct tells me to stay away, especially when pondering about taking a trading position.

The longer that I look at Japanese politics and its economy, I can’t help conclude that’s it’s not a place to invest. I won’t fill this blog with stats in trying to prove my case. There is plenty of data covering Japan available for analysis.

Confusingly, Japan has suffered 20 years of deflation and at some point assets in that country should reach a point of being cheap. After all, it has iconic companies and brands that still have global marketshare and impact.

Yet, Japan has had 6 Prime Ministers in 6 years, it’s 10 year government bond offers a yield below 0.90% and it’s currency (Yen) is near its all-time high.

Why would you own these bonds and Yen?

“Umming” and “Ahhing” can help in telling you when to stay away but if the move in the pendulum is at such an extreme and fundamentals don’t warrant such a swoon, then rather than “watching”, a trade towards a reversion to the mean is worth a look.

What if the Yen weakened significantly and the yield on its 10 year bond tripled?

 

 

%d bloggers like this: